WEST BOROUGH, Mass.-Arch Wireless Group’s shares jumped up 14 percent at the start of trading Feb. 15 to about $1 per share after announcements it received $250 million for the sale of its SMR licenses to Nextel Communications Inc. and its plans for new product releases, but the company got a strong vote of no confidence from Standard & Poor’s for its $500 million universal shelf registration.
Standard & Poor’s gave the company’s senior unsecured debt a preliminary rating of CCC, and its preferred stock landed a preliminary CCC rating.
“Given the ongoing price and margin erosion in the one-way business, a declining one-way subscriber base for both Arch and Paging Network Inc. … and uncertain prospects for the combined company’s advanced two-way messaging services, operating cash flow growth potential for the combined company is very limited,” Standard & Poor’s said in a release.
Additionally, if Arch isn’t able to “significantly” increase its cash flow soon, Standard & Poor’s said, it could be in violation of its bank loan’s total debt-to-operating cash flow ratio requirement within the next several quarters.
Arch’s only hope is to aggressively grow out its two-way messaging services, but Standard & Poor’s expectations for the company’s two-way services remain “highly uncertain,” and Arch’s ratings could be downgraded even further in the near future.
Standard & Poor’s assessment comes after Arch recently landed a needed cash infusion with the sale of its unused licenses to Nextel. The company announced it received the total $250 million.
Arch could also benefit from the $500 million shelf registration, which it said would allow the company to access the equity and debt markets over time, pursue debt-for-equity exchanges and complete possible future acquisitions.
Arch also released some upcoming products and services announcements.
The company said it would soon offer its Arch Webster 200 and 300 service, which will incorporate Arch’s two-way messaging capabilities with Handspring and Motorola personal digital assistants. Other soon-to-be-released Arch products include its VClient e-mail manager and Sales Force Automation business messaging service.
Most importantly, Arch said it was moving into the telemetry market with its new Advance Vehicle Location product, which the company said would include a two-way device incorporated with a global positioning system. Arch said the product would be available by the middle of the year.
“Arch is utilizing the reliability, coverage and flexibility of our ReFLEX network to expand the possibilities of wireless for consumers,” said Esti Witty, the company’s president of product development and support.
