MJD Bonds Up On Cash Infusion

In yet another move that indicates an interest from equity sponsors in the telecommunications sector, MJD Communications received a cash infusion last week of about $445 million from Thomas H. Lee Partners and Kelso Co.

The move made MJD's $200 million in outstanding bonds move up a couple of points to 96 and 97, according to institutional investors involved with the company. Before the announcement, the price on the bonds was hovering around 94 and 95.

And one portfolio manager who likes the company, said there will be future upside in the price of the bonds as well.

Of the total amount, $375 million came from Boston-based Thomas Lee, while the remaining $70 million came from New York-based Kelso. Part of the proceeds will be used to buy back equity from other existing shareholders, according to portfolio managers.

The larger picture is one of a company that is currently in the ILEC category (incumbent local exchange carrier) expanding into the more competitive CLEC arena (competitive local exchange carrier), analysts said.

It's a natural progression, since the company has all the hard assets and marketing know-how it really needs - one analyst said it was akin to McDonald's expanding beyond hamburgers and serving breakfast - but the CLEC sector is indeed a more rough and tumble arena.

It is also one that's extremely capital intensive. Every time one of the companies says it is planning an expansion, it becomes a potential new issuer in the high yield market, according to telecom analysts.

Instead of focusing on the urban areas, MJD's business strategy is to buy and operate rural and ex-urban properties.