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06 Dec 1996
MOODY'S RAISES DEBT RATINGS OF BELL ATLANTIC - WASHINGTON, D.C. TO Aa3
New York, 12-06-96 -- Moody's Investors Service raised the senior debt ratings of Bell Atlantic-Washington, D.C., Inc. (BA-DC) to Aa3 from A1.
The upgrade recognizes the November 12, 1996, approval of a price cap plan for BA-DC by the District of Columbia Public Service Commission (DCPSC), the increasingly diversified nature of the company's revenue stream, and its improved cost structure. Moody's believes that these factors will allow it to continue improving its financial performance and to achieve debt protection measurements more in line with industry averages.
The enactment of national telecommunications legislation in February 1996 promises to dramatically increase the competitive challenges faced by the entire U.S. local telephone industry. However, BA-DC was among the first companies in the U.S. to face competition in high-capacity access services, and has been successfully meeting this challenge.
In addition, although the DCPSC reduced BA-DC's basic service rates by $26 million over its four-year term and established an infrastructure fund in which the company is required to invest, the plan removes all restrictions on earnings and grants BA-DC pricing flexibility for discretionary and competitive services. This order demonstrates an increasingly balanced regulatory environment in the District and establishes the framework under which the transition to a competitive marketplace will continue . Moody's believes that the adoption of a price-cap plan signals the start of a balanced transition to a fully competitive market.
In recent years, Bell Atlantic Corporation, the company's parent, has centralized certain network operations centers in its subsidiary's service territory. As a result, BA-DC now generates a growing percentage of its revenues from facilities rental and other services that it provides to its affiliates. About 35% of BA-DC's revenue derives from other than basic telephony services, versus an industry average of about 12%. Because of this, the company's revenue stream is increasingly stable and predictable and less subject to competitive challenges.
BA-DC has also reinvested in its network and in operating support systems that have substantially improved its cost structure, enhanced its network capabilities, expanded service offerings, and boosted productivity. While future productivity gains may slow, the company's ongoing network investment and its affiliation with the Bell Atlantic family of telephone companies should enable it to maintain a competitive cost structure and increasingly predictable revenue stream over the next few years. And although its line growth is well below the industry average, Moody's expects BA-DC to continue to benefit from the healthy demand growth on its existing lines, especially for enhanced data services in the business segment, which represent two-thirds of its customer base and custom calling features in the residential market.
The $26 million rate reduction and the likelihood of additional strategic price cuts in response to increasing competition, will moderate future improvement in earnings and cash flow. However, gains in operating efficiency, an increasingly diversified revenue stream, and parent company support are likely to continue to support a strong financial profile and to steadily strengthen its cash flows. Through the first nine months of 1996, cash coverage of interest expense was 13 times and gross funds from operations was 82% of total debt. The industry averages are about 14 times and 65%, respectively.
Capital expenditures will likely remain well above the levels of a few years ago as Bell Atlantic Corporation completes certain network and system consolidation within BA-DC's service territory. Moody's expects BA-DC will fund this spending through strengthening cash flows and ongoing equity support from Bell Atlantic. A modest reduction in debt levels is anticipated over the next couple of years.
Bell Atlantic-Washington, D.C., Inc. is headquartered in Washington, D.C. and is a wholly owned subsidiary of Bell Atlantic Corporation.
No Related Data.
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