Analysts are far from a consensus on whether the debt of embattled telecommunications equipment manufacturer Marconi is a buy or a sell. The only point analysts do agree on is that the company's dim picture should be a bit clearer when it releases an earnings statement today. At 30 cents on the dollar, Ziki Salav, a credit analyst at Dresdner Kleinwort Wasserstein in New York, called Marconi (BBB-) a buy, because the company's creditors are in such a bad position that it should be relatively easy to renegotiate its credit agreements. "The banks are in a bad position. The company pays LIBOR plus 40 basis points and there are no covenants in the agreement. It should be easy for the company to extend the maturity of its credit facility to '05 by giving the banks seniority," he added.
However, Chavan Bhogaita, telecom credit analyst at Bear Stearns in London, disagrees: "We're maintaining a sell, because there is just too much uncertainty. The credit is optically attractive at these distressed levels, but you're still buying bonds in a company with potential downside risk." Bhogaita is concerned that in the event the banks do renegotiate the $7.5 billion credit facility, bondholders would be subordinated, and in the case of an outright liquidation recovery rates would be extremely low. "A balance sheet restructuring is definitely on the cards, but if you take away the intangible assets, i.e. good will, there is no value there," he said.
Aizaz Shaikh, a telecom analyst at BNP Paribas in London, is taking the wait-and-see approach: "There is a limit to where these bonds can be beaten down. I don't think they're worthless." Shaikh added that 25 cents on the dollar would be a reasonable price to buy.