NEW YORK-Metrocall Inc., Alexandria, Va., was expected to place privately last week a $250 million issue of 10-year senior subordinated notes that cannot be redeemed by the paging carrier for at least five years.
Proceeds of the new issue will repay outstanding borrowings from a $400 million credit facility, which will be replaced by a new $200 million secured credit facility that matures in six years.
Moody’s Investors Service Inc. assigned a speculative grade rating of B3 to the $250 million note issue and a slightly higher rating of B1 to the new secured credit facility. The New York-based rating agency also raised to positive from stable its ratings outlook for other outstanding debt issues of the second-largest paging carrier in the country.
“The ratings reflect the paging industry’s continuing difficulty to produce meaningful amounts of free cash flow to repay debt,” said Tom Marshella, managing director, and Marcus C. Jones, senior analyst, for Moody’s corporate finance group.
“Positively, the ratings outlook reflects Metrocall’s improved leverage position due to [its] recent acquisition of AT&T (Corp.’s) paging operations.”
Also last week, Standard & Poor’s announced it raised several ratings on Metrocall.
The company assigned a CCC+ rating to Metrocall’s $250 million senior subordinated notes due 2008, up from CCC, and also assigned a B+ rating to the company’s $200 million senior credit facility, up from a B.
“The upgrade reflects sustained strengthening in the company’s financial profile, despite an ambitious acquisition plan that has included ProNet (Inc.) and, most recently, AT&T’s Advanced Messaging Division,” the report read.
Standard & Poor’s noted Metrocall’s strong cash flow growth, strong subscriber base, acquisitions, average revenue per unit and low capital requirements.
The acquisition of AT&T’s paging operations gives Metrocall a nationwide narrowband personal communications services license, provides it with subscribers who post higher than average revenue per unit and expands its footprint into the Pacific Northwest, the Moody’s analysts noted.
An agreement to resell PageMart Wireless’ advanced paging services gives Metrocall “low-cost entry” into providing two-way paging, “which is expected to grow more quickly than traditional one-way paging,” Marshella and Jones added.
“Two-way paging, however, will potentially increase the capital requirements of paging carriers to build out these advanced networks and to purchase two-way pagers for lease to subscribers … [until customers] are willing to purchase a more expensive piece of equipment than a one-way pager,” they said.
