MOODY'S CONFIRMS THE Aa1 LONG-TERM DEBT RATINGS OF TELECOM CORPORATION OF NEW ZEALAND LTD AND ITS GUARANTEED SUBSIDIARIES
New York, 2/24/1997 -- Moody's Investors Service confirmed the Aa1 ratings on long-term debt issues by Telecom Corporation of New Zealand Limited (Telecom) and its guaranteed subsidiaries. This concludes a review initiated on November 14, 1996, in response to Telecom's announcement of a NZ$1 billion share buyback. Initially leverage will increase and debt-protection measures will decline as a result of the external financing necessary to fund the buyback. However, the company's strong and stable cash generation characteristics will permit gradual improvements after providing for the company's high dividend payout and capital expenditure program.
Moody's expects Telecom to finance the share buyback using external financing, which will lead to an overall decline in debt-protection measurements. Proforma financial leverage will likely exceed 50% and interest coverage will decline to approximately 6 times in the near term as a result of the additional interest burden.
Telecom has successfully met the challenges of a non-regulated environment through attention to service quality and cost controls. This has been reflected in the significant improvement in operating results during the past several years. While its market share in key segments is likely to decline over the intermediate term, market growth and ongoing cost containment should permit the company to continue to generate strong returns. However, the share repurchase has substantially reduced Telecom's flexibility to sustain and absorb unanticipated operational and financial stress.
Ratings confirmed are:
Telecom Corporation of New Zealand Limited - Aa1 rating on senior unsecured notes and Aa1 counterparty rating;
TCNZ Finance Limited - Aa1 rating on backed senior unsecured notes;
Telecom Corporation of New Zealand (Overseas Finance) Limited - Aa1 on backed senior unsecured notes.
Telecom Corporation of New Zealand Limited - Prime-1 short-term rating was not under review.
Telecom Corporation of New Zealand Limited is headquartered in Wellington, New Zealand and is the principal supplier of telecommunications services in New Zealand.
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