Arch Communications & Units Corp Credit Rtd B- by S&P.NEW YORK--(BUSINESS WIRE)--June 22, 1998-- NY -- Standard & Poor's CreditWire 6/22/98 - Standard & Poor's today assigned its triple-'C'-plus rating to Arch Communications, Inc.'s(ACI ACI American Concrete Institute ACI Arch Coal Inc ACI Airports Council International (formerly Airport Associations Coordinating Council) ACI Automobile Club d'Italia ACI American Competitiveness Initiative ) $125 million senior notes due 2007, issued under Rule 144A Rule 144A A Securities & Exchange Commission rule modifying a two-year holding period requirement on privately placed securities to permit qualified institutional buyers to trade these positions among themselves. with registration rights. ACI is a wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. of Arch Communications Group Inc . Standard & Poor's also assigned its single-'B'-minus bank loan to Arch Paging Inc., a wholly owned subsidiary of ACI. Standard & Poor's also lowered its rating on Arch Communications Group Inc.'s senior discount notes to triple-'C' from triple-'C'-plus and affirmed af·firm v. af·firmed, af·firm·ing, af·firms v.tr. 1. To declare positively or firmly; maintain to be true. 2. To support or uphold the validity of; confirm. v.intr. its triple-'C'-plus rating on USA Mobile Communications Inc. II's (USA Mobile) senior notes. USA Mobile is a wholly owned subsidiary of Arch Communications Group. The corporate credit rating on all the entities is single-'B'-minus. The ratings on Arch Communications Group and USA Mobile have been removed from CreditWatch, where they were placed on January 13, 1998. The outlook is negative. Concurrent with the ACI note offering, USA Mobile's name will change to ACI. Proceeds of the ACI notes will be used to repay a portion of outstanding bank debt. The issuance of these notes is contingent upon Adj. 1. contingent upon - determined by conditions or circumstances that follow; "arms sales contingent on the approval of congress" contingent on, dependant on, dependant upon, dependent on, dependent upon, depending on, contingent the closing of an amended $400 million credit facility and $25 million equity investment from Sandler Capital Management Co. in the form of PIK PIK See: Payment-in-kind bond PIK See payment-in-kind security (PIK). preferred. The ACI notes, which include the existing USA Mobile notes, are rated one notch lower than the single-'B'-minus corporate credit rating due to the amount of liabilities at the operating company operating company A business that engages in transactions with outsiders. level. The Arch Communications Group notes are lowered due to the increased proportion of debt to which it is structurally subordinated. The existing USA Mobile indenture An agreement declaring the benefits and obligations of two or more parties, often applicable in the context of Bankruptcy and bond trading. The term indenture primarily describes secured contracts and has several applications in U.S. law. restricts the flow of dividends for payments on Arch Communications Group's notes. The company will be able to refinance Refinance 1. When a business or person revises their payment schedule for repaying debt. 2. Replacing an older loan with a new loan offering better terms. Notes: When a business refinances they typically extend the maturity date. all the USA Mobile notes by late 1999. Arch Paging's bank loan rating was assigned the same rating as the corporate credit rating reflecting the partial security of assets provided by the company's operating subsidiaries An operating subsidiary is a business term frequently used within the United States railroad industry. In the case of a railroad, it refers to a company that is a subsidiary but operates with its own identity and rolling stock. . The consolidated company corporate credit rating of single-'B'-minus reflects Arch Communications Group's weak cash flow measures, limited financial flexibility, and the high level of debt, which is expected to continue over the next three to four years. Although the amended credit facility and the $25 million equity investment provide some degree of increased liquidity near term, this is offset by the company's $1 billion debt level which is about 2 times (x) the annual revenue run rate. Margins have been among the highest in the industry due the company's low cost structure. The recent reorganization of its corporate structure is expected to produce $15 million in annual cost savings. However, the company needs to grow its top line in order to realize a meaningful reduction in debt and improve its financial flexibility. Growth in revenues will depend upon market demand for value-added higher priced services. Bundling of these services with core paging services will be essential to maintain a competitive position and increase cash flow. Debt to earnings, before interest, taxes, depreciation, and amortization (EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become ) is expected to be in the 7x range in 1998 and then decline to about 6x in 2000. EBITDA coverage of interest is anticipated to be below 2x during this period. OUTLOOK: NEGATIVE Financial measures are expected to remain weak over the next two years. If no material reduction in debt leverage measures occurs within this time frame, the rating could be downgraded. Furthermore, any acquisitions would have to result in deleveraging the company, in order to maintain the current rating, Standard & Poor's said. -- CreditWire
CONTACT: Rosemarie Kalinowski, 212/208-1645
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