Debt repayment doubts put Time Warner Telecom on ‘CreditWatch’

Standard & Poor’s Ratings Services placed Time Warner Telecom on CreditWatch Thursday based on concerns over the competitive local exchange carrier’s outstanding debt, which stood at about $1.2 billion at the end of June.

“Over the past 18 months, Time Warner Telecom has been unable to materially increase its overall revenue base," said Standard & Poor's credit analyst Catherine Cosentino in a statement issued Thursday, expressing “heightened concerns about [TWT’s] high financial leverage…and elevated concern about its ultimate debt-repayment prospects.”

“We don’t necessarily agree with S&P’s assessment,” a TWT spokesman said. “Our numbers speak for themselves and show strong trends of revenue growth, especially during the last three quarters.”

“We’ve been EBITDA-positive since 1999, we have $382 million in cash and investments and an undrawn $150-million line of credit,” he added. “We don’t have any debt maturities until 2008, and that’s $200 million at that time.”

Though the company’s revenue from enterprise customers grew 17% in the first half of the year, that progress was dampened by flat revenue from carrier customers, resulting in an overall revenue growth of just 7%. TWT has been increasing its ratio of enterprise-to-carrier customers steadily over the past two years. Whereas carrier revenue exceeded enterprise revenue in the first quarter of 2003, 55% of TWT’s second-quarter 2005 revenue came from enterprises, and 38% came from carriers, a fraction S&P called “still…sizable.” Meanwhile, S&P pointed out, the CLEC’s debt is about six times its earnings before interest, taxes, depreciation and amortization (EBITDA).

Affirming S&P’s “B-2” credit rating today, S&P warned, “Without demonstration of a reasonable path to achieving meaningful positive cash flow, ratings will be lowered.”