US Unwired, a Sprint-affiliated wireless telephone provider that has been trying to renegotiate credit covenants since last fall, could breach the covenants by the end of this month if an agreement on a new package is not reached. Ed Moise, US Unwired's treasurer, said if the company does not breach the covenants by the end of this quarter, it expects it will in the fourth quarter. Blowing a covenant would result in loss of access to a $64 million credit. "We're talking to banks about putting a new covenant package in place," Moise said. "It's been a long process. It's coming slowly." The company's bank debt is currently quoted in the 88-91 range, according to a trader.
While Moise emphasized that discussions are ongoing with US Unwired's existing lenders, Bank of New York, CoBank, Wachovia Securities and GE Capital, he said the company would be willing to consider seeking alternate lenders. "I think at this point we are open to all options," Moise said, but he was not willing to reveal whether US Unwired is actively seeking other banks. He declined to specify which covenants need to be reworked. Calls to BoNY and CoBank bankers were not returned. A GE Capital spokesman did not return calls and a Wachovia spokeman declined comment.
US Unwired has been unable to recoup heavy wireless business start-up costs in the face of an intensely competitive industry and soft economy. One analyst at an investment bank covering the company believes that US Unwired should be able to successfully amend its covenants, citing a solidly improved EBITDA in the third quarter and an improved wireless industry as factors that will give the company flexibility in bank negotiations. "From an operational standpoint, they are at the higher end of the [Sprint] affiliates," he added.
But Standard & Poor's analyst Eric Weil noted that US Unwired's corporate credit rating of CCC- reflects the high financial risk imposed by the company's overwhelming debt and lack of available cash. "Typically, companies could opt to make the facility smaller or they could try to relax some of the covenants" to free up cash, Weil said of US Unwired's options. Moise said the company has sold some non-core assets to increase available cash. "Hopefully, we'll sell some more," he said. At the end of the second quarter, US Unwired's $70 million available revolving credit was reduced by $5.5 million when Coast Business Credit, one of its lenders, was placed in receivership.