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Technology Stocks : MetroNet Communications Corp (METNF) -- Ignore unavailable to you. Want to Upgrade?


To: MangoBoy who wrote (24)6/3/1998 11:08:00 PM
From: MangoBoy  Respond to of 30
 
[Moody's affirms MetroNet Communications]

NEW YORK, June 3 - Moody's Investors Service has assigned a B3 rating to MetroNet Escrow Corp.'s (Escrow) proposed $350 million senior discount note due 2008. Additionally Moody's has confirmed the B3 rating on MetroNet Communications Corp.'s (MetroNet) existing $250 million 12% senior notes due '07 and $170 million 10-3/4% senior discount notes due '07.

The risk profile of the Escrow notes are essentially the same as that of MetroNet's existing senior notes.

Escrow will issue the notes and hold the funds pending the acquisition of Rogers Telecom Inc. (RTI). Upon acquisition, the notes will be assumed by MetroNet.

If the acquisition is not completed, the funds will be used to buy back the Escrow notes. We believe that the acquisition will form a nice strategic fit with MetroNet.

Funding of the C$1.05 billion acquisition is approximately 40% equity, maintaining the balanace sheet condition. Even the typical concerns regarding business integration appear to be relatively modest in this instance.

Broadly, therefore we consider this transaction to be a net-positive development for noteholders. RTI began building its competitive access provided (CAP) business in 1989.

RTI's physical plant appears to have very little overlap with MetroNet's and the quality and compatibility is strong. RTI has Lucent switching and MetroNet has Northern Telecom, however MetroNet will benefit in having two vendors as it grows.

The RTI system will add 3,100 route kilometers of fiber within the business districts of cities in Canada. This acquisition provides an acceleration of MetroNet's planned construction.

From a marketing prospective, MetroNet obtains several benefits. First, MetroNet expands its first-to-market lead.

Additionally, RTI was MetroNet's only meaningful facilities-based competitor, other than the incumbent telephone provider.

From the human capital aspect, MetroNet will obtain 200 RTI employees, comprised of technicians and sales people.

The single shortcoming we can find at this stage has to do with the switched business, but our concern is not large. RTI had not yet made the transition into the switched services business (first allowed in January 1998.)

MetroNet will have some work to do in hiring a sales force and building the customer support necessary to expand this business over the RTI territories.

However, this is a business that MetroNet provides in its areas, so we expect they can manage this requirement. The transaction is expected to close at the end of June.

We do not foresee any regulatory issues in meeting that date. The financing will be comprised of Class B (non-voting) stock, valued at approximately C$450 million and cash of C$600 million.

Outside of this transaction, we still recognize several significant risks. MetroNet is still in a very high-growth stage of business, is financed heavily with debt and has at least two years prior to generating positive cash flow.

These risks, partially off-set by strong management, access to capital, a favorable regulatory environment and a strong competitive position, justify the B3 rating on the notes. Moody's first rated MetroNet April 23, 1998.

The company has its headquarters in Calgary, Canada.