NEW YORK-Chase Telecommunications Inc., a C-block personal communications services carrier waiting for favorable stock market conditions before going public, was expected to place privately last week a $125 million debt issue.
Credit Suisse First Boston Inc., New York, is the lead banker on the deal, which is to be comprised of seven-year senior discount notes. For the first five years of the issue, the securities will be zero-coupon notes, meaning that they are sold at a deep discount to face value instead of paying interest periodically. The buyers of zero-coupon debt receive a rate of return based on the gradual appreciation in the value of the security.
The notes also are non-callable for the first five years after issuance. Therefore, Chase cannot redeem, or buy them back, from purchasers for at least that period of time.
Last year, when Houston-based Chase Telecommunications first filed with the Securities and Exchange Commission for an initial public offering of common stock, the plan was to sell publicly an IPO and a debt issue at the same time, said David P. Wells, a managing director and high-yield bond analyst at Bear, Stearns & Co. Inc., New York.
“Ideally, a high-yield issue would be in conjunction with an equity offering,” he said. “Without it, it will be harder to sell. Despite the reputation of high risk in high-yield (debt), high-yield investors are more risk averse than equity investors.”
Consequently, such bond buyers take more comfort in purchasing the debt of companies that already have equity shareholders. The difficulties some startup PCS carriers have had in their initial launches in large urban areas have given the equity markets pause, however.
“The market will get stronger, but some of the new entrants have had trouble rolling out, and this is making it harder for others to get to (the capital) market,” Wells said.
Additionally, “the designated entities (in the C-block PCS auction) won licenses at a discount, but paid a high price on a per-pop basis and have to repay government loans.”
