The vendor-financing claims of Leap Wireless stopped leaping and started soaring last week, ticking up more than 10 points to trade in the 108-109 range. Solid numbers and the promise of equity were cited as the biggest reasons for the lofty levels. "The catalyst is the company has posted January and February numbers that look good," said David Wells, a managing director at David L. Babson. He said the company's cash flow is good and that Leap has been cutting back on capital expenditure and building cash. Market participants said the name could trade even higher.
Speculation on the value of the equity that holders of Leap's vendor-financing paper will receive has been driving the price upward, traders said. These investors, with about $1.6 billion in outstanding claims, are slated to receive 96 1/2% of the equity in the newly reorganized Leap and $350 million in new debt when the company emerges from bankruptcy. Moreover, "Wireless, in general has got a little better tone to it," noted Wells. Many publicly traded rural cellular companies have been trading within the range of 6.5-10 times EBITDA, he noted Comparable valuations have been applied to Leap's equity-to-be.
Although the vendor-financing paper has been changing hands at increasingly stronger levels over the last couple of months, the paper only moved up above par from the 96-97 range last week. The paper has moved up almost 90 points since reaching a low in the high teens in late 2002. Some of the original lenders sold down portions of their exposure at that time. The company later filed for bankruptcy in April 2003. A Leap spokeswoman declined comment.