Recent trades totaling some $300 million in vendor financing debt of Leap Wireless Cricket provide the first substantial valuation of wireless spectrum assets in close to two years, says Frank Colombo, head of research at Seaport Group, a New York distressed boutique. The debt sold at approximately 17, valuing Leap's share of the spectrum at $333.4 million--about 20% of the price fetched by similar assets at an auction by the Federal Communications Commission last January, says Colombo. Leap Wireless owns spectrum rights in several mid-sized cities.
Lucent Technologies and Ericsson sold more than half the vendor financing paper, which was purchased by hedge funds and other distressed securities investors, according to Colombo. Seaport Group brokered the trades, but Colombo would not disclose the names of the buyers.
Estimates of the worth of the wireless spectrum vary greatly, but could affect valuations of wireless and cable companies, including Triton PCS, Sprint PCS and Cablevision. However, wireless watchers such as David Wells, former wireless analyst at Lehman Brothers and now a portfolio manager at David L. Babson & Co., say such companies are not valued according to the worth of their spectrum. "When you have companies like Triton that are expected to produce $220 million in positive cash flow next year, the valuation ruler changes. The only reason people are concerned about spectrum value here is that Leap is a young company and they question its business plan."