Hunting for cash

Teligent talks to Wall Street this week Like so many competitive local exchange carriers, Teligent will have some explaining to do when it conducts its earnings call this week. After raising $200 million in public equity in the spring, Teligent last month announced it is in the market for new money.

Teligent has been negotiating with its existing equity investors, banks and vendors, but the fixed wireless carrier won't say much more until Thursday's earnings call. "These negotiations are continuing, and while we cannot guarantee their success, we are pleased with the progress that has been made so far," Chairman and CEO Alex Mandl said in a prepared statement on Oct. 20."We will not issue any further public statements regarding these negotiations until they are concluded."

In the meantime, how much money does Teligent need, and where is it likely to find it?

Dan Zito, CLEC analyst for Lehman Bros., estimates that Teligent needs an additional $250 million to get through 2001 and $1.6 billion to become EBITDA-positive sometime in the second half of 2003. He expects Teligent, which now serves small and medium-sized businesses in 43 U.S. markets, to spend $4 billion in domestic capital expenditures during the next decade.

In documents filed with the U.S. Securities and Exchange Commission in April, Teligent said that it expected to have enough cash from the proceeds of the stock offering, its cash at the time (approximately $400 million) and its $600 million credit facility to fund its operations through the end of 2001. Mandl's Oct. 20 statement said Teligent was funded "into the second quarter of 2001." Teligent now has its $600 million credit facility and about $300 million in cash and equivalents.

Zito doesn't see high-yield debt as an option."With [Teligent] bonds yielding 26%, the public debt markets remain closed to Teligent," Zito writes.

New strategic investors are possible. The present roster includes Hicks Muse Tate & Furst, Liberty Media and NTT. Another secondary offering might be as unwise as it is unlikely - Teligent's stock price has dropped from almost $100 to about $7 in eight months, and investors generally seem hostile to CLEC stocks.

So Teligent's options likely are limited to new money from old sources, vendor funding, revising its business plan and the sale of the company.

Hicks Muse, Liberty Media and NTT, having gone in for a very heavy penny, will stay in for a pound and likely will keep other strategic investors away, Zito believes.

"Given that fixed wireless technology will play an important role in the long-term network landscape and that Teligent holds scarce spectrum rights, we believe its sponsors will likely continue to support it," Zito writes.

But maybe not. Two of those investors - Hicks Muse and Liberty Media - walked away from ICG Communications earlier this summer. Carl Vogel, Liberty Media's board member at Teligent, was on the ICG board and even served for about a month as its CEO, after former CEO and founder J. Shelby Bryan resigned. Earlier this year, ICG and Teligent were discussing a rollup.

Teligent hasn't been subject to as much senior management turmoil as ICG, but its president and chief operating officer, Kirby "Buddy" Pickle, left during the summer to run PF.Net, a carrier's carrier start-up.

"That gives me some concern," said Jonathan Atkin, broadband analyst with Dain Rauscher Wessels. "I mean, the COO, the guy who is deploying the network, has decided to go with a start-up."

The appearance of stability may be important with Teligent's two major vendors, Nortel Networks and Hughes Network Systems. A Nortel spokeswoman declined to say whether her company was in talks with Teligent but stressed that her company's vendor funding process is "rigorous;" it requires board approval.

Calls to Hughes Network Systems were not returned.

There might be ready partners - and maybe buyers - for Teligent, Atkin said. "Look at the partnerships in the DSL space - NorthPoint and Verizon, Covad and SBC," he said. "Then look at the CLECs that are fully funded and have healthy balance sheets - Allegiance, Time Warner Telecom and McLeodUSA. They might think the spectrum assets, customer base and revenues would fit into their portfolios."

The cost and the complexity - and, again, the unavoidable need for capital - involved in such an acquisition would make it difficult to complete, Zito said. However, he believes Teligent can thrive over the long haul by focusing on local and data services, de-emphasizing long-distance resale and digging deeper into its existing markets. Company officials say they are doing precisely that.

"If they focus on the bigger markets and become a smaller, more focused, deeper company, that's a better business model to me," Zito said.