Vor dem Deal würde die Differenz des Geldes von Januar bis Juli reichen. Nach dem Deal wären sie schuldenfrei, und sie würden mit ca. 200 Millionen $ bis zum breakeven auskommen.
Das ist IMHO ein Supergeschäft.
The strange case of telecoms groups paying off their debts
By Peter Thal Larsen and Stephanie Kirchgaessner in New York
Published: August 7 2001 18:55GMT | Last Updated: August 7 2001 19:06GMT
Quelle:
Something odd is happening in the US telecoms sector. Struggling start-up operators are using their precious cash reserves to pay off their debts.
On Tuesday Covad Communications, a provider of high speed internet access systems, announced that it was in negotiations with bondholders to cancel its entire debt.
Covad is getting a bargain: by offering bondholders a cash payment of $283m and some new shares, it is retiring debt with a face value of $1.4bn.
However, the deal will use up about half of Covad`s cash reserves, leaving it with just $250m. As a result, the company will now have to raise another $200m to fund its operations until it becomes profitable.
Raising that cash will be hard. The public markets for debt and equity are effectively closed to telecoms start-ups as investors nurse huge losses on their investments.
With a few exceptions, private equity investors are also wary of dabbling in an industry which is plagued by huge overcapacity.
Yet Covad is not alone. Last week XO Communications, another struggling telecoms operator, started buying back its bonds in the market. The company is thought to be preparing to spend about $250m to retire debts worth around $800m. Level 3, the long-distance fibre provider, has announced similar plans.
Companies generally buy back debt when they have spare cash. But in the telecoms sector this is hardly the case.
Analysts calculate that XO will need another $1.1bn in funding before it achieves profitability in 2004. While buying back debt may reduce future interest charges, it will ultimately increase the company`s funding gap.
Bo Fifer, an analyst at Deutsche Banc Alex Brown, calculates that if XO is paying $250m for debt worth $800m at face value, the company is saving $180m in interest payments over two years. This puts XO in a net $70m worse funding position.
"It`s only smart when you are fully funded," he says. "If you are under-funded, you have got to sit on that cash like it is gold."
Others see the buyback as a last-ditch bid to stave off bankruptcy. "The real question is whether these companies can restructure their balance sheets without eliminating shareholder equity," says Mark Kastan, an analyst at Credit Suisse First Boston.
In some cases, telecoms operators may not have any choice. Last week a bondholder in Mpower Communications sued the internet and telephone service provider in an attempt to declare it insolvent.
The lawsuit, which Mpower has rejected as baseless, is the latest example of bondholders pressuring companies they believe have no future to pay out their remaining cash rather than hanging on until the money runs out.
Yet it seems that companies such as Covad and XO have other plans. Covad is understood to be in negotiations with investors to raise the $200m it needs to see it through to profitability.
Meanwhile, Wall Street observers believe XO`s current backers, which include the telecoms entrepreneur Craig McCaw, will not allow the company to fail. This view is not shared by bondholders, who are currently trading XO debt at about 40 per cent of its face value. But if XO was to announce extra financing, the price of the debt would rise - increasing the cost to XO of paying it off.
"If they really believe they can raise some other money, then it makes sense to buy back the bonds when everyone thinks they might go bust," says one investment banker. "But it`s a high-risk strategy."" target="_blank" rel="nofollow ugc noopener">http://news.ft.com/ft/gx.cgi/ftc?pagename=View&c=Article&cid=FT3O6T814QC&live=true&tagid=ZZZPCGI2B0C&subheading=telecoms
Something odd is happening in the US telecoms sector. Struggling start-up operators are using their precious cash reserves to pay off their debts.
On Tuesday Covad Communications, a provider of high speed internet access systems, announced that it was in negotiations with bondholders to cancel its entire debt.
Covad is getting a bargain: by offering bondholders a cash payment of $283m and some new shares, it is retiring debt with a face value of $1.4bn.
However, the deal will use up about half of Covad`s cash reserves, leaving it with just $250m. As a result, the company will now have to raise another $200m to fund its operations until it becomes profitable.
Raising that cash will be hard. The public markets for debt and equity are effectively closed to telecoms start-ups as investors nurse huge losses on their investments.
With a few exceptions, private equity investors are also wary of dabbling in an industry which is plagued by huge overcapacity.
Yet Covad is not alone. Last week XO Communications, another struggling telecoms operator, started buying back its bonds in the market. The company is thought to be preparing to spend about $250m to retire debts worth around $800m. Level 3, the long-distance fibre provider, has announced similar plans.
Companies generally buy back debt when they have spare cash. But in the telecoms sector this is hardly the case.
Analysts calculate that XO will need another $1.1bn in funding before it achieves profitability in 2004. While buying back debt may reduce future interest charges, it will ultimately increase the company`s funding gap.
Bo Fifer, an analyst at Deutsche Banc Alex Brown, calculates that if XO is paying $250m for debt worth $800m at face value, the company is saving $180m in interest payments over two years. This puts XO in a net $70m worse funding position.
"It`s only smart when you are fully funded," he says. "If you are under-funded, you have got to sit on that cash like it is gold."
Others see the buyback as a last-ditch bid to stave off bankruptcy. "The real question is whether these companies can restructure their balance sheets without eliminating shareholder equity," says Mark Kastan, an analyst at Credit Suisse First Boston.
In some cases, telecoms operators may not have any choice. Last week a bondholder in Mpower Communications sued the internet and telephone service provider in an attempt to declare it insolvent.
The lawsuit, which Mpower has rejected as baseless, is the latest example of bondholders pressuring companies they believe have no future to pay out their remaining cash rather than hanging on until the money runs out.
Yet it seems that companies such as Covad and XO have other plans. Covad is understood to be in negotiations with investors to raise the $200m it needs to see it through to profitability.
Meanwhile, Wall Street observers believe XO`s current backers, which include the telecoms entrepreneur Craig McCaw, will not allow the company to fail. This view is not shared by bondholders, who are currently trading XO debt at about 40 per cent of its face value. But if XO was to announce extra financing, the price of the debt would rise - increasing the cost to XO of paying it off.
"If they really believe they can raise some other money, then it makes sense to buy back the bonds when everyone thinks they might go bust," says one investment banker. "But it`s a high-risk strategy."" target="_blank" rel="nofollow ugc noopener">
Others see the buyback as a last-ditch bid to stave off bankruptcy. "The real question is whether these companies can restructure their balance sheets without eliminating shareholder equity," says Mark Kastan, an analyst at Credit Suisse First Boston.
In some cases, telecoms operators may not have any choice. Last week a bondholder in Mpower Communications sued the internet and telephone service provider in an attempt to declare it insolvent.
The lawsuit, which Mpower has rejected as baseless, is the latest example of bondholders pressuring companies they believe have no future to pay out their remaining cash rather than hanging on until the money runs out.
Yet it seems that companies such as Covad and XO have other plans. Covad is understood to be in negotiations with investors to raise the $200m it needs to see it through to profitability.
Meanwhile, Wall Street observers believe XO`s current backers, which include the telecoms entrepreneur Craig McCaw, will not allow the company to fail. This view is not shared by bondholders, who are currently trading XO debt at about 40 per cent of its face value. But if XO was to announce extra financing, the price of the debt would rise - increasing the cost to XO of paying it off.
"If they really believe they can raise some other money, then it makes sense to buy back the bonds when everyone thinks they might go bust," says one investment banker. "But it`s a high-risk strategy."" target="_blank" rel="nofollow ugc noopener">http://news.ft.com/ft/gx.cgi/ftc?pagename=View&c=Article&cid=FT3O6T814QC&live=true&tagid=ZZZPCGI2B0C&subheading=telecoms
Something odd is happening in the US telecoms sector. Struggling start-up operators are using their precious cash reserves to pay off their debts.
On Tuesday Covad Communications, a provider of high speed internet access systems, announced that it was in negotiations with bondholders to cancel its entire debt.
Covad is getting a bargain: by offering bondholders a cash payment of $283m and some new shares, it is retiring debt with a face value of $1.4bn.
However, the deal will use up about half of Covad`s cash reserves, leaving it with just $250m. As a result, the company will now have to raise another $200m to fund its operations until it becomes profitable.
Raising that cash will be hard. The public markets for debt and equity are effectively closed to telecoms start-ups as investors nurse huge losses on their investments.
With a few exceptions, private equity investors are also wary of dabbling in an industry which is plagued by huge overcapacity.
Yet Covad is not alone. Last week XO Communications, another struggling telecoms operator, started buying back its bonds in the market. The company is thought to be preparing to spend about $250m to retire debts worth around $800m. Level 3, the long-distance fibre provider, has announced similar plans.
Companies generally buy back debt when they have spare cash. But in the telecoms sector this is hardly the case.
Analysts calculate that XO will need another $1.1bn in funding before it achieves profitability in 2004. While buying back debt may reduce future interest charges, it will ultimately increase the company`s funding gap.
Bo Fifer, an analyst at Deutsche Banc Alex Brown, calculates that if XO is paying $250m for debt worth $800m at face value, the company is saving $180m in interest payments over two years. This puts XO in a net $70m worse funding position.
"It`s only smart when you are fully funded," he says. "If you are under-funded, you have got to sit on that cash like it is gold."
Others see the buyback as a last-ditch bid to stave off bankruptcy. "The real question is whether these companies can restructure their balance sheets without eliminating shareholder equity," says Mark Kastan, an analyst at Credit Suisse First Boston.
In some cases, telecoms operators may not have any choice. Last week a bondholder in Mpower Communications sued the internet and telephone service provider in an attempt to declare it insolvent.
The lawsuit, which Mpower has rejected as baseless, is the latest example of bondholders pressuring companies they believe have no future to pay out their remaining cash rather than hanging on until the money runs out.
Yet it seems that companies such as Covad and XO have other plans. Covad is understood to be in negotiations with investors to raise the $200m it needs to see it through to profitability.
Meanwhile, Wall Street observers believe XO`s current backers, which include the telecoms entrepreneur Craig McCaw, will not allow the company to fail. This view is not shared by bondholders, who are currently trading XO debt at about 40 per cent of its face value. But if XO was to announce extra financing, the price of the debt would rise - increasing the cost to XO of paying it off.
"If they really believe they can raise some other money, then it makes sense to buy back the bonds when everyone thinks they might go bust," says one investment banker. "But it`s a high-risk strategy."
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