WASHINGTON-Raising capital for the extensive buildout of NextWave Telecom Inc.’s 56 markets appears to be less of a problem for the C-block personal communications services auction winner than it will be for other tentative licensees, according to Allen Salmasi, NextWave’s chairman, president and chief operating officer.
Its Form 600, submitted to the Federal Communications Commission late last month, detailed NextWave’s strong ties to Korea and to manufacturer Qualcomm Inc. during the C-block PCS auctions and well into the future.
In the past four months, NextWave has raised $400 million in a combination of an ING Barings-underwritten private placement and commitments from other investors. During the next several months, Salmasi and company will try to pick up additional cash through vendor financing, more private placements and debt.
And with a $4.2 billion auction bill to be serviced, an initial public offering will be introduced into the mix soon. According to company sources, a Form S-1 securities registration-the first step of an IPO-was to have been submitted to the Securities and Exchange Commission last Friday.
But will Wall Street analysts and investors welcome new PCS entrants with open arms, as Salmasi believes they will?
Duff & Phelps Credit Rating Co. told Sprint Corp.-a 40-percent owner of Sprint Spectrum-that while its senior debt rating had been upgraded from “BBB+” to “A,” the company may feel some financial heat from the financial losses that will be incurred by the PCS venture during its startup period.
These developments pose no threat for NextWave, Salmasi said. “We have a unique business strategy that makes us more `financeable,’*” he added. “We pose a lower risk because we plan to be a carriers’ carrier. We don’t have to depend on adding one customer at a time; we can pre-sell capacity to resellers that would guarantee network use.” NextWave’s network planning, which began a year ago, currently is in the site-acquisition stage.
Salmasi also told RCR that NextWave went with the British investment house ING Barings for its first private placement, completed May 6, in part because of previous dealings he and others in the company had had with the firm and in part because other major U.S. financial institutions were “tapped out” due to prior commitments made to other PCS bidding entities.
Like other PCS licensees, money for the NextWave venture also came from private sources-its principals, preferred suppliers and foreign investors. NextWave had been closed-mouthed about its relationship with Qualcomm (previous employer of several NextWave principals and strong proponent of Code Division Multiple Access technology) and with Korean manufacturers and investors, and it kept quiet about control-group ownership during the C-block bidding period. According to NextWave, besides the control group, 79 entities hold direct interests in the company, but none owns more than 5.36 percent on a fully diluted basis. Foreign ownership as of May 22 totaled 23 percent, below the FCC’s 25-percent ceiling.
NextWave’s voluminous Form 600 lists the following owners of Series A common stock: Navation Inc. (Allen Salmasi, wife Nicole and three children), 52.67 percent; Good News Communications Co. LLC (Stephen C. Park and wife), 33 percent; and Freedom Mobility Inc. (Janice Obuchowski, two children), 5.23 percent. These entities have full voting privileges along with the right to elect the majority of board members.
NextWave also sold 84 million shares of Series B common stock to 54 outside investors, who will have-except in isolated special circumstances-no voting rights. The following entities own at least five percent of Series B stock:
Cerberus Partners LP, a New York-based money manager, 5.4 percent.
Korea-based manufacturers ILJIN Diamond Co. Ltd., 3.1 percent; and ILJIN Corp., 3.1 percent.
Korea Electric Power Co., a public utility also involved in telecommunications, 6.2 percent. This company is 75.66-percent owned by the Korean government.
LG InfoComm Inc., a telecommunications research and development, and manufacturing company, 6.2 percent.
PECO Energy Co., a southeastern Pennsylvania gas and electric utility, 7.93 percent.
POSAM, a Korean exporter/importer of steel and a holder of other U.S. investments, 7.93 percent. Its parent company POSCO, which is owned 19.55 percent by the Korean government, also holds 7.93 percent.
Qualcomm Inc., a wireless manufacturer, 7.93 percent;
Triumph-California LP, a money manager, 4.76 percent. An affiliated company, Triumph-Connecticut LP, also owns 4.76 percent.
The Korean government, 6.25 percent.
Hughes Network Systems Inc. will be allowed to purchase $20 million of Series B stock if and when a definitive equipment-purchase agreement is signed between NextWave and Hughes/Qualcomm.
Several of these companies-PECO, POSAM and Qualcomm along with Sony Electronics Inc.-also hold warrants to purchase additional Series B common shares at $3 per share. If exercising these warrants tips the foreign-ownership scale over the 25-percent mark, they cannot be honored.
NextWave also borrowed money from six companies; the debt will convert, in part, to Series B common stock. Bastion Capital Corp. advanced $10 million; Cerberus Partners, $22.4 million; Continental Casualty Co., $15 million; CIBC WG Argosy Merchant Fund II LLC, $15 million; M.D. Sass Re/Enterprise Partners, $10 million; Qualcomm, $25 million; and Nomura Holding America Inc., $15 million.
Qualcomm has been granted a “first priority security interest” in nearly all of NextWave’s assets in case the company goes bankrupt or cannot meet its financial obligations. Its loan has been guaranteed by several NextWave principals.
In return for cash infusions, Qualcomm agreed to supply 50 percent of NextWave’s infrastructure needs, and it will “treat [NextWave] as a preferred customer for delivery allocation purposes.” NextWave has an agreement with ILJIN to “contemplate” buying additional equipment if and when the manufacturer develops gear NextWave thinks it could use. In addition, NextWave could purchase 30 percent of its handsets and 50 percent of its international infrastructure equipment from LG InfoComm Inc.
