Nearly $800 billion in U.S. corporate debt will come due over the next five quarters, according to new Standard & Poor’s research. And despite Vonage Holdings Corp.’s recent struggles, the speculative-grade telecom/cable sector should remain somewhat sheltered from any fallout.
That’s because many telecom and cable companies took advantage of solid market conditions in 2005 through mid-2007, putting them “in a better position than they would have been” if they had acted later, Richard Siderman, a managing director for Standard & Poor’s, told xchange. They further secured bank loans when conditions and covenants were “pretty favorable,” Siderman said.
All of that begs the question of whether telecom/cable executives saw the market meltdown coming. Probably not, but previous similar activity arouses the thought. For instance, in early 2007, just months before the subprime mortgage implosion hit the market, cable operator Charter Communications (CHTR) “did some opportunistic refinancing,” said Siderman. “In retrospect, it looks like a strategic move.”
Now, jump ahead more than a year and – as authors of the Oct. 15 report, “Refinancing Amid the Credit Crunch” – point out, the current crunch could put the squeeze on riskier stocks such as telecom and cable’s. Certainly Vonage’s battle to refinance its soon-due $253 million in debt speaks to that hardship.
"In normal times, this would be business as usual, but the credit freeze has made it difficult for firms, especially in the speculative-grade space, to tap markets," Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group, said in a news release. "Firms that can access the bond or loan market are not going to like what they see, as bond and loan spreads in the secondary market are at all-time highs.”
A number of telecom and cable companies qualify as speculative-grade stocks. Those are considered risky, particularly when compared with expected return. For example, penny stocks often are viewed as speculative grade. Right now, Charter, XO Holdings (XOHO) (which eliminated its debt in July), Vonage (VG), Pervasip Corp. (PVSP), and 8x8 Inc. (EGHT) all fall under that definition.
The good news for telecom and cable was that the overall maturity schedule – $794 billion – is “relatively light” for speculative-grade firms through 2010, according to Standard & Poor’s. Therefore, authors explained, those companies should not be a significant source of default pressure.
Regardless, no matter who might be insulated from defaults, businesses across all verticals will pay more to roll-over mid- and long-term debt, Standard & Poor’s analysts said. For risky credits, maturities might be a potential default trigger until credit markets recover, they added.
Standard & Poor’s researchers based their findings on bond, notes, and bank debt.
