NEW YORK-Sygnet Wireless Inc. sold a $110 million issue of 10-year senior unsecured notes Sept. 19 to help finance its acquisition of Horizon Cellular Telephone Co.
The notes were priced at face value, with an interest rate of 11.5 percent, according to Donaldson, Lufkin & Jenrette Securities Corp., New York, lead underwriter. The issue has a five-year call provision, meaning that Sygnet can redeem the notes prior to their final maturity date but only after they have been outstanding for at least five years.
Sygnet Wireless, headquartered in Canfield, Ohio, is a holding company for Sygnet Communications Inc., which owns and operates a contiguous cellular telephone system covering about 2.4 million people in northeastern Ohio, western Pennsylvania and western New York. The company, which markets its services under the Cellular One brand name, has its largest concentration of customers in the area between Pittsburgh, Cleveland and the New York cities of Buffalo and Rochester.
Sygnet, which began cellular operations in 1985, has expanded through a series of acquisitions. The most recent, announced in June, is its $250 million purchase of five rural service area properties from Horizon. Including the Horizon acquisition, Sygnet’s subscriber base totaled 89,000 customers as of June 30, constituting a 3.76 percent penetration rate.
Sygnet has converted all of its existing systems to Time Division Multiple Access digital cellular technology, “and will selectively convert the more densely populated portions of the Horizon systems to digital technology in early 1997,” said the preliminary prospectus for the note sale.
The debt issuance represents the company’s first access to the public capital markets. It canceled an initial public offering earlier this year, but intends to raise equity capital within the next year, according to Moody’s Investors Service Inc., New York.
Standard & Poor’s Corp., New York, gave the note issue a speculative grade rating of CCC+. Moody’s accorded the note issue a speculative grade Caa rating, and a slightly higher rating of B3 to a $300 million senior secured bank credit facility Sygnet has obtained. After it finances the Horizon acquisition, Sygnet expects to have about $93 million of the bank credit facility left to use for capital and other expenditures.
“The ratings reflect the risks associated with the company’s high leverage, weak cash flows relative to planned capital expenditures and fixed charges, and the longer-term prospects of increasing competition in its markets … ” Moody’s’ evaluation said. “These risks are somewhat offset by initial protection from personal communications services competition due to Sygnet’s demographic footprint, and a business plan that-if successful-should improve cash flows over time.”
