Moody’s rates Nextel Communications ‘SGL-1’
Moody’s Investors Service, New York, has assigned a speculative grade liquidity rating of SGL-1 to McLean, Va.-based Nextel Communications.
“With the rise in bond defaults over the last two years, market participants have expressed a need for an in-depth examination of liquidity in isolation from other factors that are a part of our traditional bond ratings,” said Mike Rowan, managing director and co-head of Moody’s Corporate Finance Group.
Moody’s said that SGL is a short-term rating system for speculative grade issuers that are, by definition, “not prime,” and are assigned on a scale from SGL-1 (very good) to SGL-4 (weak).
The SGL-1 liquidity rating takes into consideration that, although Nextel’s cash provided by operations are not currently covering the company’s capital expenditures, Nextel does has a cash balance of $2.5 billion (pro forma for all announced exchanges). Further, Nextel has a covenant cushion under its $6 billion secured credit facility that Moody’s believes should permit continued access to the undrawn $1.5 billion revolving portion of that credit facility.
For the first six months of 2002, Nextel generated $909 million in cash from operations and incurred capital expenditures of $1 billion and acquisitions of $317 million. Although Moody’s expects that Nextel’s spending on capital expenses and acquisitions will moderate and cash provided by operations will grow, the debt rating service also expects Nextel will consume cash this year and next.
Moody’s estimates that Nextel will end the year with $2 billion in cash on its balance sheet and that the company will not have had to draw any amounts under its $1.5 billion revolving credit (which is part of its $6 billion facility).
Moody’s described Nextel’s operating results as “robust” and referred to the company’s exchanges of senior notes and preferred stock. Moody’s stated that Nextel had “reduced its leverage (excluding preferred stock) to 4.3x debt/LQA EBITDA compared to a leverage covenant that steps down to it lowest level of 5.0x in the first quarter of next year.”
Moody’s said that Nextel’s term loans begin to amortize in the fourth quarter of this year, and that they would require $50 million of amortization in each quarter of next year. The debt rating service stated that Nextel faces no other near-term debt maturities.
“Nextel has no visible source of alternate liquidity beyond its cash balance and revolver capacity. However, due to the amount of cash carried on the balance sheet, improving cash flows, and the amount of cushion to its bank covenants that should allow the company to maintain orderly access to its revolving credit facility, in Moody’s opinion, this liquidity profile warrants and SGL-1 rating,” Moody’s said.
Nextel Communications is a national wireless service provider with 9.6 million subscribers and LTM revenues of $7.8 billion.
Among other speculative grade liquidity ratings issued by Moody’s today, American Tower was rated SGL-4, and Crown Castle International was rated SGL-3.
