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Broadview Constrained by ‘Weak’ Liquidity Profile, ‘Unsustainable’ Capital Structure

Citing a number of concerns, Moody’s Investors Service on Monday downgraded some ratings on Broadview Networks Holdings, affecting roughly $300 million in debt.

The New York-based credit ratings agency characterized Broadview’s capital structure as “unsustainable” and noted that one of its ratings reflected “negative trends in the industry due to reduced voice usage and strong competition from traditional wireline carriers, other Competitive Local Exchange Carriers (CLECs), cable companies, and Voice over Internet Protocol (VoIP) services for small and medium business customers.”

“The relative small size compared to competitors, declining revenue, and minimal free cash flow after interest expense and capital expenditure also constrain the ratings,” Moody’s wrote.

Moody’s added that “Broadview’s liquidity profile is weak” when considering the maturation of $300 million in debt due on Sept. 1 and the due date of a revolver facility on Aug. 1. At the end of the first quarter, Broadview listed $23 million in cash and investment securities and had drawn $16 million on its revolver, according to Moody’s.

S&P also cut its ratings on Broadview over concerns that the company cannot repay its $300 million in debt that comes due Sept. 1.

“Given that the company’s cash, certificates of deposit, and investment securities collectively totaled  $25 million as of March 31, 2012, and our expectations for no more than modest levels of free operating cash flow (FOCF) over the next year, we believe the  company does not have the financial capacity to repay this debt from its existing cash sources,” S&P stated. “We therefore believe there is high risk of either a payment default or a financial restructuring which we would consider a distressed exchange.”

Revenues at money-losing Broadview have been declining over the last three years, according to a 2012 investor presentation available on its website. Broadview reported first-quarter 2012 revenues of $88.5 million. That figure is down from revenues of $98.4 million in the year-ago quarter, $105.7 million in the same period two years ago and $122 million in the first quarter of 2009.

Broadview noted, however, that traditional voice decline is slowing while it’s been able to boost revenues per customer. The company also said it’s shifting a greater percentage of revenues to larger customers, which is resulting in fewer defections.

Broadview serves 36,000 small and medium-sized business customers with $692 in average revenue per customer, and its roughly 300 agent partners are responsible for 24 percent of new sales, according to the investor presentation.

The company reported a 2011 net loss of $11.86 million on revenues of $378.15 million.


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