U.S. Telecom Industry Retains Solid Liquidity Despite Market Conditions

Financial flexibility and liquidity for the U.S. telecommunications sector generally remains solid despite general weakness in the credit and economic markets, according to Fitch Ratings.

Fitch reviewed 20 rated entities in the U.S. telecommunications sector with an Issuer Default Rating (IDR) between 'BBB+' and 'CCC'. Fitch's analysis found that these companies produced last 12-month (LTM) free cash flow (as of March 31, 2008) of approximately $11 billion and maintained a balance sheet cash level of $15 billion. This level of internal liquidity compares to a 2008 and 2009 debt maturity schedule of approximately $8.2 billion and $7.3 billion, respectively. Similarly, revolving credit capacity for the sector remains strong with an average availability of 70% or approximately $22 billion.

While liquidity concerns are less pronounced compared with the general credit and macroeconomic environment, Fitch believes it is appropriate to review how well the sector is positioned to weather future liquidity issues, should existing market conditions persist. Telecom operators have taken advantage of consolidation to capture scale synergies and expand financial flexibility. As a result competitive overlap of the industry has risen, increasing the effects of company operating mistakes on financial prospects and flexibility. This growing competitive environment has heightened the need for strong liquidity among companies.

Fitch believes that refinancing risks for the industry are relatively minor, even if credit market conditions remain tight for the remainder of 2008 into 2009. Telecom issuers have done a good job over the past several years refinancing debt maturities to later years and increasing liquidity.

The report addresses the relative positioning of each of the 20 companies in this study with respect to key liquidity considerations such as free cash flow, cash, revolving credit facilities and refinancing risk.

You can download the report from the Fitch Website (registration required).

Posted to the site on 8th July 2008