S&P Revises Outlk on GCI Inc & Subs to Neg

Business Wire, Sept 16, 1998

NEW YORK--(BUSINESS WIRE)--S&P's CreditWire 9/16/98--Standard & Poor's today revised the outlook on GCI Inc. and its subsidiaries, GCI Holdings Inc., and Alaska United L.P. to negative from stable.

At the same time, Standard & Poor's affirmed its double-'B' corporate credit rating on GCI and its subsidiaries.

Standard & Poor's also affirmed its single-'B'-plus rating on GCI's unsecured debt and its double-'B' bank loan ratings on GCI Holdings and Alaska United.

GCI is a diversified telecommunications provider with the second largest market share (approximately 42%) in the Alaskan long distance market and is Alaska's leading cable TV provider. The outlook revision results primarily from recent weakness in GCI's local telephone revenues and increased uncertainty in cash flows from Alaska United's new fiber optic transport business.

GCI continues to perform well in its long distance business where revenues and gross margins have improved. The company's cable service has been stable with growth limited by the industry-wide decline in pay-per-view sales. However, GCI's venture into local telephone services has performed worse than expected. The problems are due, in part, to processing delays in switching customers from the incumbent local exchange carrier, ATU Telecommunications (ATU). Slower than expected growth is likely to continue in the near term as delays have forced GCI to cut back on its marketing of local services and the company pursues legal and regulatory means to induce ATU to increase the pace of customer conversions.

The company's debt to capital is high, at 70% and earnings before interest, taxes, depreciation, and amortization (EBITDA) interest coverage is expected to remain modest, at about 2 to 3 times (x). As of June 30, 1998, GCI's outstanding debt totaled about $300 million. Part of the proceeds from debt financing are being used to complete the Alaska United project which is a fiber optic cable that will link Fairbanks, Anchorage, and Juneau with the lower 48 states. AT&T was expected to be one of GCI's major customers on the new cable but the company recently announced that AT&T had selected another carrier to meet its immediate needs for additional fiber capacity to and from Alaska.

OUTLOOK: NEGATIVE

GCI is likely to continue to experience difficulties in its local telephone business over the next one to two years. In addition, if GCI is unable to find customers to replace AT&T, the company will experience reduced cash flows, Standard & Poor's said.--CreditWire