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Saw this "Analyst FYI" on MSN's Money Central whose site is shown at the end:

<<<NEW YORK, Dec 13 - Standard & Poor's today placed its long-term ratings on BellSouth Corp., BellSouth Telecommunications Inc., and units on CreditWatch with negative implications (see list below).

At the same time, Standard & Poor's affirmed its short-term ratings on BellSouth Telecommunications and BellSouth Capital Funding Corp. (see list). These ratings are not on CreditWatch.

The CreditWatch placement follows the recent announcement of BellSouth's plans to fund as much as $8 billion in the Netherlands' dominant telephone carrier Koninklijke KPN N.V. (KPN) (double-'A'/Watch Neg/'A-1'-plus) for wireless and other ventures. Lent funds will be structured as two separate lending arrangements (of $3 billion and $5 billion) and have warrants and optional conversions to KPN and/or KPN Mobile equity interests.

The magnitude of prospective potential loans to KPN, coupled with expectations that BellSouth will continue to aggressively expand its presence outside its core domestic local and wireless operations, create a degree of financial and business risk that may not support the current triple-'A' rating category. The KPN transaction does, in fact, heighten Standard & Poor's concerns about the financial policy required to support such initiatives, especially given the fact that the triple-'A' rating provided limited capacity for incremental debt.

Such debt arrangements have been developed in conjunction with the restructuring of BellSouth's interest in German wireless carrier E-Plus Mobilfunk Gmbh, a transaction which leaves BellSouth's interest in E-Plus intact and does not have any credit implications for BellSouth.

Under the agreement, BellSouth will exercise its right of first refusal for shares of E-Plus held by RWE AG, Veba AG, and Vodafone AirTouch PLC and purchase these companies' combined 77.5% ownership stake for Euro (EUR) 9.1 billion ($9.2 billion) through a loan received from KPN. Such shares will then be contributed to a holding company, to be owned 22.5% by BellSouth and 77.5% by KPN. BellSouth will have the option to convert ownership in this entity to shares in either KPN or KPN Mobile.

BellSouth's fundamental strength has historically been driven by its robust core businesses. The company has experienced continued steady cash flow stemming from efficient local telephony operations in the Southeast, coupled with healthy growth in domestic cellular cash flow. As a result of these factors, the company generated funds from operations of about $6 billion for the nine months ended Sept. 30, 1999. Funds from operations interest coverage was 9.2 times, and annualized net cash flow funding of average debt was 50% for the same period.

Such credit strength mainly comes from the firm's telephone operating unit, BellSouth Telecommunications Inc., which provides service in nine Southeastern states and accounted for about 71% of revenues for the nine months ended Sept. 30, 1999, and 60% of consolidated assets as of Sept. 30, 1999. Telephone access line growth has been strong, but manageable, allowing aggressive capital spending to be focused on continued network modernization.

BellSouth also has expanded aggressively into overseas wireless markets, mainly through partnership arrangements. These investments include a nearly 45% interest in the Brazil-based BCP Telecomunicacoes consortium, which operates a cellular franchise in the Sao Paulo metropolitan area and a 65% stake in the Argentina-based Movicom, which is building personal communications services networks in Buenos Aires and other parts of Argentina.

Although BellSouth traditionally has financed a substantial amount of such expansion efforts through internally generated cash and asset sales, the company's propensity to expand beyond its core local telephone and domestic wireless businesses is expected to place some pressures on its credit measures.

Although current financial credit measures remain very strong, the magnitude of the $8 billion potential KPN loans and $3.5 billion Qwest Communications International Inc. investment and the possibility of further acquisitions both in Europe and other overseas markets suggest that the company's credit and business risk profile may fall short of the parameters established for the rating.

BellSouth Telecommunications' ratings are also under pressure, since it may be under increased risk as a funding conduit for such expansion ventures and no regulatory barriers exist to preclude such subsidization efforts. Standard & Poor's will meet with management to discuss the company's expansion and diversification policy to resolve the rating. RATINGS PLACED ON CREDITWATCH WITH NEGATIVE IMPLICATIONS BellSouth Corp.

Corporate credit rating AAA BellSouth Capital Funding Corp.

Long-term corporate credit rating AAA Senior unsecured debt AAA

Preliminary senior unsecured debt AAA BellSouth Telecommunications Inc.

Long-term corporate credit rating AAA Senior unsecured debt AAA

Preliminary senior unsecured debt AAA BellSouth Telecommunications 1994-A Pass Through Trust

Senior secured debt AAA BellSouth Savings & Employee Stock Ownership Trust

Senior unsecured debt

(Guaranteed by BellSouth Corp.) AAA BellSouth Savings & Security ESOP Trust

Senior unsecured debt (Guaranteed by BellSouth Corp.) AAA

RATINGS AFFIRMED BellSouth Capital Funding Corp.

Short-term corporate credit rating A-1+

Commercial paper A-1+ BellSouth Telecommunications Inc.

Short-term corporate credit rating A-1+ Commercial paper A-1+>>>


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