CD Radio Inc.'s Sr Disc Nts Rated 'CCC+' by S&P.

N.Y.--(BUSINESS WIRE)--Standard & Poor's CreditWire 8/13/98 -- Standard & Poor's today assigned its triple-'C'-plus corporate credit rating to CD Radio Inc. At the same time, a triple-'C'-plus rating was assigned to the company's existing 15% senior secured discount notes due 2007.

The outlook is developing. The ratings reflect the substantial financial and business development risks that the company faces in the construction, launch, and marketing of its satellite digital audio radio service (DARS) for motorists. Considerable uncertainty attaches to the consumer demand, manufacture, and distribution of the necessary consumer electronic hardware, the required marketing costs, success of programming, and overall system technical viability. Additional risk stems from the planned November 1999 initial launch of three dedicated high-power S-band satellites, which are required in order for the service to become operational with its planned 100-channel capacity by the first quarter of 2000. Longer-term success will depend on subscriber penetration and stability.

Founded in 1990, CD Radio is a developmental business that holds one of the two FCC licenses to build nationwide DARS. American Mobile Radio Corp., the company's competitor and holder of the other license, is developing a similar, compatible service, which it expects will also be operational in 2000. CD Radio's proposed service requires the purchase of a $199 package, which includes a miniature rear windshield-mounted dish and a radio card that inserts into an automotive cassette player. After installation by the motorist, the service requires a $9.95 per month subscription charge. The service will be transmitted nationwide via satellite and a planned supplementary network of terrestrial repeaters in urban areas, and will offer 50 channels of commercial-free music and 50 channels of advertiser-supported talk and information programming.

CD Radio is spending heavily to launch its service and does not expect to generate positive cash flow until at least late 2000. The company estimates that it will require $964 million to develop the service by the first quarter of 2000, of which about $364 million must still be raised. During the first year of operations, an additional $140 million of external funding will be required. Modest liquidity is provided by the absence of cash interest payments on the senior secured discount notes until 2003.

OUTLOOK: DEVELOPING CD Radio is spending heavily to develop an unproven media service to compete with the conventional radio broadcast industry and with a start-up competitor in this satellite niche. Consumer demand may not be sufficient to support two or even one DARS operator, and consumer equipment subsidies may be necessary. While much of the start-up funding is in place, and noncash interest offers a degree of support, the company faces at least a two-to-three year start-up period before its viability is established. A possible ratings upgrade will depend on successful completion of the satellite launches, adequate consumer equipment availability, and visible subscriber penetration. Failure to obtain remaining required funding or delays in commercial rollout of the full-scale service could negatively affect the ratings. -- CreditWire

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