Wireless carriers have joined the millions of homeowners who are taking advantage of the country’s economic slowdown and resulting low interest rates to reduce debt levels and refinance existing debt at interest rates not seen in decades.
Since the beginning of June, a number of operators, including Nextel Partners Inc., Western Wireless Corp., Centennial Communications Corp. and HickoryTech Corp., have announced debt exchanges and offerings that in many cases have allowed carriers to reduce the interest they are paying on long-term debt as well as help improve their balance sheets in an attempt to reach free cash flow.
“Carriers are taking advantage of the debt markets opening up and are going out and raising debt at lower rates than before,” explained Jeffrey Hines, president of N. Moore Capital Ltd.
Nextel Partners said it planned to sell $450 million of 8.13-percent senior notes due in 2011 and would use proceeds to finance its previously announced cash tender offer for its 14-percent senior discount notes due in 2009 and for other purposes.
Western Wireless earlier this month sold $100 million of convertible subordinated notes due 2023. The carrier said the notes would bear 4.63 percent of interest per year with proceeds set aside for working capital and the ever-popular general corporate purposes.
Centennial priced $500 million of 10.13-percent senior unsecured notes due in 2013, with $300 million of the net proceeds destined to repay a portion of term loans under the company’s senior credit facility and the balance set aside to repay amounts outstanding under the revolving part of the senior credit facility and to pay fees and expenses related to the transactions.
Instead of exchanging debt, HickoryTech said it locked in a lower fixed-interest rate on $100 million of the company’s long-term debt, adding it expects interest expense for this year will be 40-percent less than the $10.9 million expended in 2001.
“We already benefited from some of the lowest lending rates of any of our peers, with an average interest rate of less than 4.3 percent at year-end 2002, and it was advantageous to lock in a significant part of that benefit for long term,” explained David Christensen, vice president and chief financial officer at HickoryTech.
“These are good moves for the companies and allow them to improve their balance sheets and in many cases move that much quicker to posting free cash flow results,” Hines added.
