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Technology Stocks : Broadband Wireless Access [WCII, NXLK, WCOM, satellite..] -- Ignore unavailable to you. Want to Upgrade?

To: SteveG who wrote (301)	6/2/1999 1:56:00 PM
From: SteveG	Read Replies (1) \| Respond to of 1860

from SSB's Grubman - WCII: CONVERSION OF NOTES LIKELY; POSITIVE FOR WINSTAR Wednesday, June 02, 1999 --SUMMARY:--WinStar Communications, Inc.--Telecommunications Services WinStar's 14% convertible senior subordinated note will automatically be converted into 5.9 mil shares of stock if WCII closes above $42 3/8 today. We believe this is very positive for WCII since it will reduce the potential dilution from these notes & it will lower WCII's interest expense by $10 million in 1999 and $19 million in 2000. It is important to note that in our 10 year DCF which we use to value WCII, we used fully diluted shares to determine our equity value per share and thus, our valuation already included the dilutive impact of these shares. Basic shares outstanding will increase by 5.9 million shares. We reiterate our Buy and our $70 price target. --EARNINGS PER SHARE-------------------------------------------------------- FYE 1 Qtr 2 Qtr 3 Qtr 4 Qtr Year Actual 12/98 EPS $(2.54)A $(2.77)A $(2.83)A $(3.80)A $(12.61)A Previous 12/99 EPS $(3.72)A $(4.00)E $(3.80)E $(3.70)E $(15.22)E Current 12/99 EPS $(3.72)A $(4.00)E $(3.80)E $(3.70)E $(15.22)E Previous 12/00 EPS $N/A $N/A $N/A $N/A $(17.95)E Current 12/00 EPS $N/A $N/A $N/A $N/A $(17.95)E Previous 12/01 EPS $N/A $N/A $N/A $N/A $N/A Current 12/01 EPS $N/A $N/A $N/A $N/A $N/A Footnotes: --FUNDAMENTALS-------------------------------------------------------------- Current Rank........:1S Prior:No Change Price (5/28/99).....:$49.43 P/E Ratio 12/99.....:N/Ax Target Price..:$70.00 Prior:No Change P/E Ratio 12/00.....:N/Ax Proj.5yr EPS Grth...:0.0% Return on Eqty 98...:N/A% Book Value/Shr(99)..:-5.30 LT Debt-to-Capital(a)N/A% Dividend............:$N/A Revenue (99)........:440.0mil Yield...............:N/A% Shares Outstanding..:78.4mil Convertible.........:Yes Mkt. Capitalization.:3875.3mil Hedge Clause(s).....:# Comments............:(a) Data as of the most recently reported quarter. Comments............: --OPINION------------------------------------------------------------------- WinStar's 14% convertible senior subordinated note will automatically be converted into 5.9 million shares of stock if WCII closes above $42 3/8 today. We believe this is very positive for WCII since it will reduce the potential dilution from these notes and it will lower WCII's interest expense. It is important to note that in our 10 year DCF which we use to value WCII, we used fully diluted shares to determine our equity value per share and thus, our valuation already included the dilutive impact of these shares. Basic shares outstanding will increase by 5.9 million shares. The notes had a provision such that if WCII closed above $42 3/8 for 30 consecutive trading days, the notes will be converted into WCII shares. If the note does not convert in 1999, the trading level requirement for conversion is raised to $44 per share in 2000. The note is worth $122 million with a conversion rate of $20.625 and thus, an additional 5.9 million shares ($122 million/$22.625) will be outstanding after the close of June 2nd, the 30th trading day that WCII will be above $42 3/8. The convertible note accrued interest at 14% per annum with cash payments of interest to begin on April 15, 2001. Therefore, converting this note into common shares will save WCII roughly $10 million in interest expense in 1999 and $19 million in 2000. If the note does not convert, interest would continue to accrue until the principal value of the note reached $147 million on 10/15/00. At that point the convertible note would be convertible into 7.1 million shares ($147 million/$20.625). Thus, conversion at the end of today will save in interest expense as well as reduce the potential dilution by roughly 1.2 million shares. From a trading perspective, this will eliminate some of the short positions on the stock which were set up by the convertible holders to lock in their return. NET/NET: We continue to believe that WCII is an attractive asset. The conversion of this note will serve to take some debt off its books, reduce interest expense and the potential dilution from this note. We reiterate our Buy and our $70 price target.