Nextel Finds Stable Ground, OM Group Struggles

Fitch Ratings upped Nextel Communications' outlook from negative to stable on the company's BB rated senior secured credit facility after Nextel was able to significantly increase operational cash flow and reduce debt. "Over the last three quarters the company has met expectations and exceeded them," said Bill Densmore, Fitch analyst. Expected operational cash flow for 2002 now clocks in at $3.1 billion up from $1.2 billion in 2001.

Nextel has been able to benefit from stronger margins, which have increased to 39% for the third quarter 2002, due to the company's high average revenue per user and stable net additions. In addition, the digital mobile phone operator has been able to turn 75% of its revenue into EBITDA, noted Densmore. "Cost controls translate that new revenue right down to the bottom line--cash for the business," he said.

Going forward, the company must confront a debt service increase of $550 million over 2003. In addition, competitive threats to its push-to-talk offering loom, as other providers have indicated the ability to have their own push-to-talk offerings in the marketplace in 2003. "From what we understand, we still don't think that [competing push-to-talk services] would be a similar quality," said Densmore. A spokeswoman for Nextel declined to comment.

* The corporate credit rating for OM Group has been downgraded by Standard & Poor's from BB- to B+ due to the weakening effect on the company's business position as its seeks a financial partner for its precious metal operations. The precious metal business was acquired less than 18 months ago and was the foundation for the company's previous ratings, said S&P. The company believes that the pursuit of an alternative is in the best interest of its shareholders and business, said Greg Griffith, director of investor relations. Securing a financial partner will help ease the company's debt load, which now totals $1.2 billion.

OM Group continues to be held on CreditWatch negative despite the downgrade, as S&P weighs the specialty chemical company's near-term liquidity. The ability to execute its restructuring in a timely manner and maintain compliance with its credit agreement covenants in the face of expected operational deterioration, are also a concern for the credit.