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Technology Stocks : Winstar Comm. (WCII) -- Ignore unavailable to you. Want to Upgrade?

To: Steven Bowen who wrote (5476)	4/26/1998 5:58:00 PM
From: Jason Cogan	Respond to of 12468

Steven: I don't have time for an elaborate post, but I thought I would hit a few of your points. <<the company continues to show accelerating negative EBITDA" Again, must not be doing your DD. Peak EBITDA losses are (hopefully) behind them. Earnings report in two weeks should prove this.>> What is this preoccupation with DD? I have done my homework, and my statements are accurate. Up until now, the EBITDA has been accelerating. If management is correct and EBITDA has (hopefully) stopped accelerating, so much the better. But it's still a long way to go from decelerating losses to accelerating gains. I guess I'm just a little more cynical about financial performance and management spin than you. Time will tell. <<"Please, didn't you think there was anything to my point about bondholders demanding high level of interest and putting themselves in line ahead of stockholders?" No. The last financing package was at 7%. That's hardly a high level of interest.>> If you're going to complain about DD, please do your own. The last financing package was not at 7%. From the announcement: The private placements consisted of: -- $200 million of 7% Senior Cumulative Convertible Preferred Stock; convertible at $49.61 per share , a 25% premium to the company's stock price on the day of the offering; $200 million in 10% Senior Subordinated Notes due 2008; and $250 million in 11% Senior Subordinated Deferred Interest Notes due 2008. Looks to me like cost of interest was closer to 10.5%, plus the inevitable dilution if the stock gets above $49.61. Those are junk levels. And, although I know you hate to hear it, all these institutional investors are now in line ahead of you. <<Should I worry every day because a bank has a loan on my house and are in line before me to get paid off? Guess I just don't get your point.>> Let me try again. Debt in and of itself is not a bad thing, if you are enriching wealth. But notice the guarantees the recent investors in Winstar demanded. Nobody knows what the true cash flow picture of Winstar will be, and as a result, current investors want to make sure they get theirs first. No ifs ands or buts. They are demanding guarantees. Like lots of interest (10-11%). Or, a 7% cushion and then a right to exchange for stock. What does this mean for stockholders? In essence, all the cash flow you as stockholders are waiting for, must first go to them. Period. Add that to the negative net worth and option dilution, and Winstar equity holders must give away the first 2 billion in profits before you ever see a penny. This is the point I'm trying to make. Even if the future is as bright as you maintain, 2 billion of that future has already been spoken for. Would I buy the bonds? Given what I've learned here, possibly. The needs for broadband communication are huge, and wireless does represent one potentially viable alternative. Although before buying the bonds, I'd still need to be damn sure of their business plan for generating the necessary revenue. Would I buy the stock? Probably not. Just too much uncertainty regarding the future cash flow, and a whole lot of people in front of me with their hand in the cookie jar. Your points on technology, competition, etc. are quite valid, and are worthy of separate discussions. They all lead to uncertainty, but are definitely the key to Winstar's garnering any or all of the market for broadband communication. More later. Regards, Jason Cogan