NEW YORK-Two major credit rating agencies have issued alerts about Mobile Telecommunication Technologies Corp. securities following the company’s Feb. 22 release of disappointing year-end 1995 financial results.
Mtel, headquartered in Jackson, Miss., is the sixth largest paging company in the United States. Its core operation is SkyTel Corp.
Moody’s Investors Service adjusted its ratings outlook for Mtel to stable from positive, Feb. 23. The rating agency expressed concerns about the “long-term viability” of the SkyTel two-way paging product. “Mtel, which has invested heavily in two-way paging and launched the service in close to 300 U.S. cities, added only 15,400 new two-way paging subscriber units in the fourth quarter of 1995, while experiencing higher than expected costs associated with the rollout,” Moody’s said.
On the other hand, Moody’s noted that Mtel’s core one-way paging business, “continues to grow at a better than industry average rate and post steady increases in revenues from its international markets.” Non-U.S. sales quadrupled to $10 million in 1995 from $2.5 million in 1994. Mtel started 1996 with a total of about 1.1 million paging units in service, of which 135,000 were added in the fourth quarter of 1995.
Ironically, “capital requirements related to higher demand for Mtel’s one-way paging services have led to financial deterioration,” Standard & Poor’s Corp. said in a “CreditWatch with negative implications” report it issued Feb. 23.
In placing $452 million of Mtel’s outstanding debt and preferred stock on CreditWatch, Standard & Poor’s also cited higher than anticipated costs associated with the introduction of SkyTel two-way paging.
S & P also expressed concern about Mtel’s “technical default under its bank loan agreement.”
In its combined year-end and fourth-quarter report, Mtel acknowledged incurring higher than projected levels of borrowing to fund capital expenditures. “A substantial portion of these*…*are related to the purchase of pagers to support SkyTel’s one-way sales, sales by MCI Communications Corp., as well as the purchase of high-speed FLEX pagers to alleviate capacity constraints on the one-way network.”
The combination of these capital expenses and expenses associated with the launch of SkyTel two-way paging, “resulted in the company exceeding a capital expenditure covenant and a leverage maintenance covenant under its bank loan agreement,” Mtel reported. Mtel has requested a waiver of these covenant violations and more flexibility under the bank loan agreement.
In a prepared statement, John Palmer, chairman and chief executive officer said, “The fourth quarter of 1995 was the first complete quarter in which Mtel incurred a full quarter of operating costs associated with our new two-way network. As we optimize the two-way system, streamlining and controlling those expenses is a priority for 1996.”
Mtel already has identified $20 million in expense cutting opportunities in 1996, Palmer added.
Also, the company said its board of directors had accepted the resignation of J. Robert Fugats from his post as senior vice president of finance and chief financial officer. Mtel Vice Chairman John E. Welsh III has been designated acting CFO until a search is completed for Fugats’ successor.
