GCI's Proposed $70M 7.25% Senior Notes Rated 'B+'
NEW YORK (Standard & Poor's) Nov. 18, 2004--Standard & Poor's Ratings
Services today assigned its 'B+' rating to GCI Inc.'s proposed $70 million
7.25% senior notes due 2014. This issue will be an add-on to the $250
million 7.25% senior notes issued in February 2004.
Outstanding ratings on GCI, including the 'BB' corporate credit rating,
were affirmed. The outlook remains negative due to the limited cushion in
the rating for operating weakness given intense competition in the Alaskan
telecom and cable television markets.
Proceeds from the $70 million of notes will be used to repay $10 million
of senior bank debt, redeem $10 million of parent General Communications
Inc.'s series C preferred stock, repurchase up to $34 million of other
General Communications equity securities, and for general corporate
purposes. The rating on the proposed notes is two notches below the
corporate credit rating because of the substantial amount of obligations
that rank ahead of these notes, including the secured bank debt.
"Anchorage, Alaska-based GCI's rating primarily reflects its exposure to
substantial business risk in the highly competitive telecommunications
business, its modest market size, and lack of geographic diversity," said
Standard & Poor's credit analyst Rosemarie Kalinowski. GCI's
well-positioned incumbent cable television business is viewed somewhat
less risky than its larger telecom segment, and debt leverage, while
increasing somewhat because of the new notes, is still fairly moderate. As
of Sept. 30, 2004, pro forma total debt outstanding was about $478 million.
The $70 million of debt incurred as a result of the notes transaction
modestly increases debt leverage. Pro forma total debt to annualized
EBITDA (for the nine months ended Sept. 30) was about 3.6x. Adjusted for
operating leases, this ratio is about 3.8x. As the company completes a
significant capital spending program started several years ago and mostly
winds down the installation of a second undersea fiber link with the lower
48 states in 2004, it is expected to generate annual free cash flows of
more than $20 million. Even assuming that revenue growth and EBITDA
margins are modestly pressured by increased competition, GCI will likely
generate sufficient free cash flows to maintain lease-adjusted debt to
annual EBITDA below 4x, a parameter supportive of the rating.
Complete ratings information is available to subscribers of
RatingsDirect, Standard & Poor's Web-based credit analysis system, at
www.ratingsdirect.com. All ratings affected by this rating action can be
found on Standard & Poor's public Web site at www.standardandpoors.com;
under Credit Ratings in the left navigation bar, select Find a Rating,
then Credit Ratings Search.
| Primary Credit Analyst: | Rosemarie Kalinowski, New York (1) 212-438-7841; rosemarie_kalinowski@standardandpoors.com |
| Secondary Credit Analyst: | Eric Geil, New York (1) 212-438-7833; eric_geil@standardandpoors.com |
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