Hit by rating revisions that underscore an increasing inability to pay off its mounting debt, troubled NTL Inc. — a New York-based provider of cable TV and telephony service in the United Kingdom — last week said it would slash 2,000 jobs as part of a major cost-cutting initiative.
NTL said in a press release that it would reduce its workforce to 13,000 from 15,000; eliminate the use of consultants and contractors; freeze the pay of its managers; and review all operating and capital expenses.
"Difficult times mean difficult decisions and in the U.K., we are determined to continue to drive down costs and improve customer service," NTL chief operating officer Stephen Carter said in a prepared statement.
This brings the total number of layoffs at NTL to 8,800 during the past year. At the beginning of 2001, NTL had 21,800 employees.
The moves were made to alleviate growing investor concerns over NTL's debt, currently at $17 billion, or 16 times estimated 2002 cash flow.
The fears have sent NTL stock into a tailspin: It closed at 64 cents per share last Wednesday, down 23 cents. That's a far cry from the 52-week high of $40.12.
NTL had traded as high as $136.39 in January 2000.
As a result, NTL's market capitalization has plummeted to $177 million, compared to $37 billion in January 2000.
Adding to NTL's problems were concerns that it would soon run out of cash. Last month, Credit Suisse First Boston estimated NTL's funding gap to be about $750 million by the end of 2002.
While NTL has met revenue and cash-flow targets, its growth has slowed, prompting concerns among some analysts about the company's ability to meet its debt obligations.
NTL has consistently said its business plan is fully funded through 2003.
'GOING TO BE TIGHT'
UBS Warburg high-yield cable analyst Aryeh Bourkoff said his estimate of the funding gap is a little below CS First Boston's, but he agreed that the company is in for some rough going next year.
"It's going to be tight as they get through 2002," Bourkoff said. "Their liquidity is tight and they have some relatively tight bank covenants."
Bourkoff said it is likely that NTL will have to undergo some major debt restructuring in the coming year.
"NTL has a strong business model, but it also has a leveraged balance sheet," Bourkoff said. "That could portend a necessary debt restructuring. They have significant cash-flow generating potential, but they'll have to sacrifice revenue growth in order to deleverage."
Third-quarter revenue growth was slightly below expectations at 1.7 percent, sequentially. Cash-flow growth was in line with estimates, at 14.7 percent.
Adding to the pressure was a late November decision by Moody's Investors Service to lower its ratings on NTL's debt, making it more difficult for the company to access the capital markets.
On Nov. 29, Moody's lowered its ratings on NTL debt to "B3" from "B1" and its senior unsecured debt to "Caa3" from "Caa1." That's just three notches above the lowest level on the 21-rung Moody's scale.
Moody's lowered the ratings amid fears that NTL would have to convert the bonds to cash and equity as sales growth slows and interest costs escalate.
On Dec. 12, Standard & Poor's lowered its ratings on NTL's senior secured debt to "B" from "BB" and on its senior unsecured debt to "CCC" from "BB-minus." S&P also lowered NTL's long-term corporate credit rating to "B-minus" from "B-plus."
GROWTH AN ISSUE
S&P said it was concerned about NTL's high leverage and its ability to pay its debt, adding that the company's business plan is built on revenue growth of 25 percent a year, a target that it has missed considerably.
"Given the extremely high debt levels relative to revenues and earnings growth, NTL's ability to service interest payments and maintain capital expenditures is becoming increasingly challenging," S&P said in a statement.
Further adding to the uncertainty are problems surrounding NTL's moves to sell its broadcast-tower division. NTL announced in July that it would sell the division, which some analysts said was worth about $2 billion, to France Telecom.
But published reports have questioned France Telecom's enthusiasm for the deal. According to the Financial Times, France Telecom is holding out to get a lower price for the unit. France Telecom also owns a 25 percent interest in NTL.
In lowering its debt ratings, S&P said the tower sale "is proving more difficult than expected," and added that the broadcast division accounted for about 24 percent of NTL's third quarter cash flow.
Because cash flow is used to service debt, S&P said the tower sale "will in all likelihood lead to further deterioration of NTL's coverage measures."