Subject: [NEXTEL-1] Moody's raises Nextel Communications ratings

From: [email-masked]
Date: Tue, 22 Jul 2003 15:04:35 -0400

http://biz.yahoo.com/rf/030722/telecoms_nextel_moodys_1.html

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Reuters

Moody's raises Nextel Communications ratings
Tuesday July 22, 10:32 am ET

(The following statement was released by the ratings agency)
MOODY'S UPGRADES RATINGS OF NEXTEL COMMUNICATIONS; ASSIGNS B2 RATING TO
NEW $1B SENIOR NOTES DUE 2015. RATING OUTLOOK STABLE.
Approximately $12 Billion of Debt, Credit Facilities, and Preferred Stock
Affected.

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NEW YORK, July 22 - Moody's Investors Service (News - Websites) today upgraded the ratings of
Nextel Communications and its subsidiary, Nextel Finance Company, by one notch.
Moody's also assigned a B2 rating to the new $1 billion in Senior Notes due
2015 to be issued by the company. The outlook for these ratings is stable.
Moody's also confirmed the company's speculative grade liquidity rating of
SGL-1. The affected ratings are: Nextel Communications, Inc. Senior Implied
rating upgraded to Ba3 from B1 Speculative Grade Liquidity rating of SGL-1
confirmed $1 billion Senior Notes due 2015 assigned B2 $912 million 9.75%
Senior Discount Notes due 2007 upgraded to B2 from B3 $284 million 4.75% Senior
Convertible Notes due 2007 upgraded to B2 from B3 $1.3 billion 9.95% Senior
Discount Notes due 2008 upgraded to B2 from B3 $274 million 12% Senior Notes
due 2008 upgraded to B2 from B3 $1.7 billion 9.375% Senior Notes due 2009
upgraded to B2 from B3 $607 million 5.25% Senior Convertible Notes due 2010
upgraded to B2 from B3 $929 million 9.5% Senior Notes due 2011 upgraded to B2
from B3 $608 million 6% Senior Convertible Notes due 2011 upgraded to B2 from
B3 $375 million 13% Series D Preferred Stock due 2009 rating withdrawn $392
million 11.125% Series E Preferred Stock due 2010 rating withdrawn $94 million
0% Convertible Preferred Stock due 2013 upgraded to Caa1 from Caa2 Nextel
Finance Company $5.8 billion senior secured credit facility upgraded to Ba2
from Ba3 The upgrade reflects the continued outperformance the company has
achieved with revenue per user (ARPU) continuing to remain well above the
industry average, churn well below average, and subscriber growth also better
than the competition, all of which has helped the company generate free cash
flow in each of the past four quarters. The upgrade also reflects the
considerable improvement to the company's balance sheet both as a result of the
cumulative repurchase (through July 15, 2003) of $3.7 billion of senior notes
and preferred stock for a combination of cash and common stock, as well as the
improvement to the maturity profile of the company's debt as a result of those
repurchases and through the refinancing that will be accomplished via the
pending senior note offering. While the challenges Nextel faces to maintain its
high level of operating performance will increase with the launch of
push-to-talk type services from other carriers, Moody's notes that Nextel is
well positioned to defend its franchise, and we expect the company to continue
to outperform on the above mentioned metrics over the intermediate term. The
Ba3 rating on the senior secured debt of Nextel Finance Company, a wholly owned
subsidiary of Nextel Communications, reflects the strong collateral coverage
these lenders enjoy as these obligations are secured by all the assets of and
guaranteed by all the company's domestic operating subsidiaries. The B2 rating
on the senior unsecured debt of Nextel Communications reflects the structural
and effective subordination of these obligations to the secured debt of its
subsidiary. The Caa1 rating on the company's preferred stock reflects its
junior position in the capital structure. Since at least 2Q02, Nextel
Communications has consistently outperformed its national wireless competitors
by increasing its market share while attracting the highest paying, least
likely to churn customers in the marketplace. In 2Q03, Nextel again reported
very strong results with ARPU increasing sequentially to $69 per month from $67
in 1Q03. This compares to a weighted average of $53 per month for all the
national operators in 1Q03. Churn declined to 1.6% in the quarter, which
compared to a weighted average of 2.4% in 1Q03 for all national operators.
Moody's has noted in the past our concern about the sustainability of this
outperformance. The company's continued ability to take market share with the
industry's best subscribers will be tested shortly with the introduction of
wireless number portability in November and the launch of competing
push-to-talk type services from other carriers expected later this year.
However, Moody's believes that given the obvious attraction of the Nextel
service shown by the company's strong historical results, as well as the years
of development the company has made in its unique products and services, it
will take other carriers quite some time before they will be able to compete
with Nextel on service quality for push-to-talk type services. While carriers
are likely to initially compete on price, and Nextel is likely to experience
some ARPU pressure, Moody's believes Nextel will be able to defend its
franchise among the better credit quality subscribers by offering a superior
product. In January of this year, Moody's recognized the substantial progress
Nextel has made to reduce its debt burden. The proposed 12 year senior note
offering will further improve the company's balance sheet as the company will
use the proceeds to retire higher coupon debt and extend its debt maturities
considerably. Moody's notes that there is still work to be done to improve the
maturity profile of the company, but Moody's believes the current refinancing
is just one step in a program to extend maturities and further reduce debt.
With regard to the company's plans to improve its spectrum position through a
spectrum swap proposal (the 'Consensus Plan') in front of the FCC, Moody's
believes that should the Consensus Plan be adopted as proposed this would bring
tremendous long term benefits to the company through the aggregation of its
spectrum holdings into two contiquous blocks, one adjacent to the cellular band
and the other adjacent to the PCS band. This would permit the company to more
efficiently utilize its spectrum and also to invest in next generation
technologies on a more even footing with its competitors. However, it is
unclear to Moody's how the government will proceed and what the outcome of
Nextel's proposal may be. Also, should the Consensus Plan be adopted, it will
entail the expenditure of $850 million to help move incumbent spectrum users
from the spectrum Nextel will be receiving, and likely require further quite
large capital expenditures to introduce new technology in the spectrum. The new
ratings assume that should the Consensus Plan be adopted such large investments
are staged over 2 to 3 years, and that the company will have the internal
resources to fund these investments. Going forward, the ratings could be
upgraded should the company make substantial additional progress in improving
its maturity profile and further reducing its debt burden. Moody's also
believes progress on resolving the Consensus Plan is important to the ratings.
The ratings would likely come under downward pressure should Nextel not be able
to successfully defend its industry leading operating metrics in the face of
more direct competition from push-to-talk type service from other operators.
Moody's notes the ratings reflect the expectation that Nextel Communications
remains a significant shareholder of Nextel Partners (senior implied B2) and
NII Holdings (unrated), but that Nextel Communications will not provide any
capital support to either affiliate. Based in Reston, Virginia, Nextel
Communications is a national wireless service provider serving close to 12
million subscribers in the US.

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