NEW YORK-Except for Geotek Communications Inc., wireless telephony companies here and abroad were conspicuous by their absence from the growing number of bond defaults that Moody’s Investors Service, New York, reported July 20.
Some 54 companies, 21 of them domestic, defaulted on $8.19 billion in long-term publicly traded bonds during the first half of this year. This is more than double the 21 issuers total which defaulted on $3.58 billion in bonds during the first six months of 1997.
The trend accelerated during the second quarter, and if current rates continue apace, the amount of defaulted public debt could reach $15 billion by year-end, said Sean C. Keenan, assistant vice president and lead author of the Moody’s report.
Geotek, which filed for Chapter 11 bankruptcy protection last month, is in default on $282 million in bonded debt. Two wireless cable television companies, Heartland Wireless and American Telecasting, defaulted on a total of $458 million in bonds in April and May.
Of the 33 overseas issuers that defaulted on their public debt during the first six months of the year, 26 were in emerging markets. Of these, 18 were in Indonesia and two in Malaysia. These defaults were centered heavily in financial services.
“There were no defaults by Asian companies whose primary emphasis is telecommunications,” Keenan said, referring to the conglomerate structure of many Asian companies, which are involved in multiple and diverse lines of business.
Keenan and Igor Shtogrin, senior associate and co-author of the Moody’s report, attributed some of the weakening of the debt market to the continuing surge in new bond sales. Of the nearly $27 billion in new speculative-grade debt issued during the second quarter, 57 percent was rated in the `B’ range.
Besides default rates, another leading indicator of bond issues’ status is their aftermarket performance. This reflects what buyers in secondary trading venues are willing to pay to buy debt securities from sellers who were the original purchasers of the bonds when the issuing company first sold them.
“As in each of the latest three months, double-B-rated issues outperformed all other ratings sectors in June,” the high-yield bond group of CIBC Oppenheimer Corp., New York, reported. Double-B is higher than single-B or C-rated debt.
CIBC tracks the aftermarket performance of the publicly held debt of 1,487 companies, 10 of which it categorizes as “international wireless.” Of these, seven are CCC-rated.
“International wireless was the overall worst-performing industry sector in June, the same … as in May,” the investment bank said.
“Its negative 1.21 percent total rate of return underperformed [our] composite index by 167 basis points. However [it] still is an out-performer on a [last 12 months’] total return basis, having outperformed [our] composite index by 557 basis points on an LTM basis.”
A basis point, used in calculating the rate of return at maturity of a debt security, equals one-tenth of a percent.
CIBC’s high-yield group also tracks 13 satellite telecommunications companies, of which a dozen are in the single-B rating category.
“The satellite telecommunications sector was second-worst (in June), with a total rate of return of negative 0.56 percent,” the investment bank said.
CIBC’s high-yield field of research also comprises 15 North American cellular, 23 North American personal communications services and 11 paging companies.
