NEW YORK—A trio of wireless carriers tapped the deep well of the debt markets last week, collectively raising nearly $2 billion.
Korea Telecom was first out of the starting gate, raising $1.32 billion in five-year, unsecured notes convertible into common stock. The securities, sold in a private placement, pay just 0.25 percent interest, said Moody’s Investors Service Inc, which accorded them a low-tier, investment-grade rating of Baa2.
Federally owned Korea Telecom, which provides wireless services through KT Freetel, is considered the dominant telecommunications service provider in South Korea. However, SK Telecom, which also owns a majority stake in SK Shinsegi Telecom, has a 52 percent share of the wireless communication market in that country.
Bell Canada joined a bevy of Canadian companies and government entities that raised funds last week in the debt markets. The telecommunications carrier increased its deal size to $313 million from $125 million before selling the ten-year note issue, priced to yield 6.25 percent.
“Bell Canada benefits from significant operating cash flow from growing wireless and data businesses. Strong subscriber growth and a greater focus on transitioning to postpaid customers continue to contribute to wireless revenue performance in line with strong fundamentals in the Canadian wireless industry,” said Linli Chin, a Toronto-based telecommunications analyst for Standard & Poor’s.
“Negative pressure placed on revenue from declining long-distance prices is being offset by an increasing proportion of revenues from high-growth and high-margin areas.”
S&P assigned a mid-tier, investment-grade rating of A-plus to the Bell Canada note issue.
Rural Cellular Corp. also was expected by the end of last week to place privately a $300 million issue of senior subordinated notes due 2010. The company said it would use net proceeds to pay down existing debt, presumably carrying a higher interest rate than is now available to it.
Moody’s Investors Service Inc. and Standards & Poor’s accorded the planned issue mid-tier, speculative-grade ratings of B3 and B-minus, respectively.
S&P said it anticipates Rural Cellular will increase capital spending this year to build out its PCS licenses. However, it will be able to do so while reducing outstanding debt because of “solid cash flow growth, improving EBITDA margins and relatively low churn despite recent issues in its southern region (acquired from Triton Cellular Partners in early 2000).”
The rating agency said Rural Cellular had reduced monthly churn to 2.1 percent during the fourth quarter of 2001 after churn had risen to 2.8 percent during the prior quarter. The spike resulted from customer care consolidation in its northwest region and from “problems in the southern region (that) highlight some of the operating risks of an acquisitive company.”
Standard & Poor’s said it did not factor into its rating of the new debt issue the scenario that Rural Cellular will be sold, an option the rating agency said company management has indicated is a possibility.
“Longer term, the role of smaller regional and rural wireless carriers is uncertain given the trend toward national carriers and footprints. … Given the higher credit quality of many potential acquirers, positive event risk exists should a transaction occur,” S&P said.
