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— Analysis —
When MetroPCS increased the offering, McGraw-Hill Cos.' Standard & Poor's unit weakened the recovery rating for the company's unsecured debt. The credit rating agency changed the rating from 3, which suggests creditors would recoup 50% to 70% in the case of a default, to 4, which indicates a 30% to 50% recovery. "It was the size of the deal, not the quality of the credit," says S&P analyst Catherine Cosentino of the reason for the lowered rating.
-- See related lending stories: -- Critical, if improving Following the dearth of financings, other communications companies had
supersized debt sales in January. Wireless tower operator Crown Castle International Corp. raised $900 million after saying it would sell $600 million in notes. MetroPCS provides so-called prepaid wireless services. Its customers pay $30 to $50 per month for unlimited service and don't have to sign the customarytwo-year contract. The notes, which mature in 2014, raise MetroPCS' total debt to about $3.4 billion. The securities pay 9.25% in interest. Because the securities priced at 89.5% of face value, however, they carry an effective yield of 11.8%. The securities were sold through J.P. Morgan Securities Inc., Banc of America Securities LLC and HSBC Securities (USA) Inc. MetroPCS argues its flexible economic model is geared to weather a downturn. The company has also experienced previous crunches. A predecessor went bankrupt in 1998 after a dispute with the government over spectrum it had purchased in an auction. The carrier started to build its network in 2001, in the dark days of the last telecom bust. It went public in April 2007, and current holders include M/C Venture Partners, Madison Dearborn Partners LLC and TA Associates Inc. Competition for new users has grown more intense as wireless penetration in the U.S. nears 90%. Verizon Wireless, the joint venture of Verizon Communications Inc. and Vodafone Group plc, and the mobile arm of AT&T Inc. have grown only larger. Struggling rival Sprint Nextel Corp. has introduced a $50 per month unlimited plan without a contract that treads on MetroPCS' turf. MetroPCS spent $313 million last year for wireless spectrum in a government auction. Moody's Investors Service suggests the carrier could spend the new funds on spectrum or other acquisitions. Verizon Wireless is auctioning wireless assets, although the 100 markets it is selling may be too small to interest MetroPCS. For the past four or five years, the looming question for MetroPCS has been when, more than if, it will combine with Leap Wireless International Inc., which also has a prepaid model. Their network footprints complement each other, and a merger would essentially create a fifth national wireless carrier. MetroPCS offered to buy Leap in a stock deal that valued the target at $7.5 billion in 2007. Leap received the unsolicited bid coldly, although the carriers have since struck a roaming agreement that provides some of the economic benefits of a merger. The January notes will not fund a buyout of Leap or another
transformative deal. Moody's expects MetroPCS to use more cash than it
generates until 2010, and the new funding improves the telecom's
liquidity as it tests its models in some of the nation's most
competitive markets. Comments |
Wireless carrier MetroPCS Communications Inc. tapped the capital markets as it attempts to elbow into large, competitive cities such as Boston and New York. The Dallas telecom raised a greater-than-expected $550 million in a January notes offering after first saying it would sell $300 million worth of securities. 
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It will certainly be interesting to see how Metro does this year with the state of the market and competition. A merger with Leap would certainly give them a better fighting chance given their questionable coverage(?). For those using the service in defined local calling areas, however, Metro can be a great deal.
Compare unlimited plans here:
http://www.prepaid-wireless-guide.com/compare-unlimited-plans.html