NEW YORK-Wireless telecommunications carriers have placed high hopes on high-yield debt to help finance their early and intensive capital needs, and the junk bond market has shown some willingness to answer the call.
To date this year, more than 70 individual issuers have sold or are on the docket to sell high-yield debt, compared with 50 during calendar year 1996, said David P. Wells, a managing director and high-yield bond analyst for Bear, Stearns & Co. Inc., New York.
As a share of the overall high-yield debt market, telecommunications issues completed or planned so far this year comprise 18 percent, compared with 15 percent of the dollar volume during 1996, Wells said June 17 at the New York Society of Security Analysts High Yield Bond Conference.
Whereas paging and cellular carriers were the only telecommunications sectors represented in the high-yield debt markets five years ago, the kinds of carriers tapping this capital source had grown by the end of 1996 to include: enhanced specialized mobile radio operators, domestic and foreign competitive local exchange carriers, personal communications services companies, foreign long-distance providers and data satellite companies. This year, foreign ESMR and paging carriers and telephony satellite companies also have accessed or are seeking to access the market, he said.
CLECs comprise the single largest junk bond issuer category this year, accounting for 33 percent of completed or proposed issuance by face value. The combined category of ESMR and PCS comprises 28 percent, with cellular at 16 percent, paging at 11 percent, long distance at 7 percent and satellite at 5 percent.
Rates of return on all telecommunications high-yield debt issues were below those of the Bear Stearns composite high-yield bond index during much of last year. After inching past the composite during February, they dipped again this spring, but were approaching the same rates of return earlier this month, Wells said.
The ESMR and PCS sectors of telecommunications junk bond issuance have fared best, exceeding the composite index since early 1996. Paging debt has fared most poorly relative to the composite index during the same period of time.
Wells said he is most optimistic about satellite company securities because “all you need is a fraction of the penetration and there will be a huge payoff in the bonds.”
At the same time, the galloping penetration of terrestrial wireless services can’t help but be good for bondholders during the next five to eight years, he said. Overall, wireless penetration is projected to reach 50 percent by 2005.
“There could be a huge payoff in the desire to be untethered,” Wells said.
