Tender Offer Drops RCN Ratings

RCN Corp.'s announcement of a tender offer for up to $290 million of its senior unsecured notes has led Moody's Investors Service to lower RCN's bank debt ratings to Caa3 from Caa1. RCN has $15 million remaining of its revolver and $539 million of senior secured term loans due 2006. Moody's stated that the Princeton, N.J.-based telecommunications company will need to further restructure its debt obligations. RCN has avoided a larger-scale involuntary restructuring to date by facilitating the sale of incumbent cable systems, but there are very few remaining assets that could be divested, Moody's states.

While RCN has worked to reduce its operating cash burn and has made some progress toward generating positive EBITDA, its cash balance has eroded and Moody's notes that it is unlikely that RCN will achieve positive free cash flow before its resources are depleted. Competition is likely to step-up as most of RCN's competitors have substantially finished network upgrades and are offering similarly advanced bundled product line-ups, Moody's adds. Timothy Stoklosa, RCN's cfo, did not return calls.