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Election Day is normally a moment for hopes and dreams, a day of optimism. And God knows, there is at the moment a vast reservoir of optimism sloshing about a triumphant America and its great bull market.

Optimism in America and American companies generally makes sense, of course. How many short-sellers have made the

Forbes 400

? More to the point, how many times has it not paid to buy the dip over the past 18 years? Never. So we have reasons to stick with our cocky conviction in U.S. equities.

So, it came as a shock today to listen in on perhaps the most downbeat Wall Street conference call heard since the bad old days of 1989-91 when junk bonds had cratered, the balance sheets of many banks and corporations looked like hell and

Saddam Hussein's

army was rolling into Kuwait. The call took place Monday afternoon -- it was closed to the press and public -- but we heard a replay Tuesday courtesy of a source who passed along the telephone number and conference code.

The conference call was sponsored by

Lehman Brothers

and featured the firm's convertible bond analyst Ravi Suria discussing his recent report on the telecommunications services sector.

Suria is perhaps best known for his bearish report late last month on

(AMZN) - Get, Inc. Report

. He just issued a similar report on the telecom companies titled, "The Other Side of Leverage: the Impact of Telecom Spreads on the Convertibles Market."

You owe it to yourself to get a copy of the report even if you never buy a convertible bond in your life. As in the 1989-91 period, debt analysts like Suria are often the first to spot trouble when the economy slows and the tide goes out for undercapitalized growth companies.

The gist of Suria's 72-page report? This year's collapse in telecom convertible bonds signals the beginning of massive bankruptcies for the industry -- especially "New Era," post-1996 companies as opposed to the more seasoned telecoms. He analyzes 142 of these New Era companies with double-B, or lower, credit ratings from

TheStreet Recommends

Moody's Investors Service


His list includes CLECs (competitive local exchange carriers), data carriers, satellite ISPs (Internet service provider), Web hosting, wireless, cable, radio and broadcasting companies. A tough-minded credit analyst, Suria focuses less on the "growth story" that has attracted stock investors to these companies and more on whether they have the cash flow to support the interest and debt burdens they have taken on in the past four years.

In his view, many of the New Era companies will not make it, and stock investors in those companies will lose everything. (In a debt-induced restructuring -- or bankruptcy, to use plain English -- debt holders have to be paid 100 cents on the dollar before equity holders get a penny. Recent restructurings in this sector have paid bond holders closer to 50 cents on the dollar, and shareholders have received zip.) The bond markets are effectively closed to many of these questionable credits. Many of the companies lack the positive cash flow to service their financial obligations. And the stock market is no longer in a mood to provide low-cost financing.

This is breathtaking stuff.

It's understandable why Lehman might not want such rough talk widely disseminated.

Suria began by explaining that the debt taken on by telecom companies is unprecedented. From 1996-2000, the high-yield (junk) market raised $240 billion in debt for the sector. To put that into perspective, he said, the


junk bond market raised only $160 billion between 1983 and 1990 during

Drexel Burnham Lambert's

heyday. Telecom debt is 150% of all the debt raised in the bad old 1980s. The debt on average carried an 8%-9% yield to maturity. Today, fears of slowing revenue, massive cap-ex ahead and negative cash flows, have crushed those bonds. Many of the new companies would now have to pay upwards of 15% for money if they were to come back to the debt markets for more money.

Of course, Suria noted that the market is closed to many of these companies no matter what interest rate they might be willing to pay. "In the aggregate," he said on the call, "the debt markets have started saying, if you need more money just to pay me back the interest on the money you already borrowed from me, it's not going to happen."

He downplayed expectations that better-financed telecoms will come in soon to buy troubled companies. Why not? In part, because even the big boys like


(T) - Get AT&T Inc. Report








Global Crossing


and the old Baby Bells are feeling the credit pinch. Perhaps more importantly, he said, why should they come in now to buy a competitor's plant and equipment for enough cash to pay off bondholders when they could build it themselves or get it for less in a bankruptcy proceeding down the road.

The Worst Is Yet to Come

Suria also said that the coming wave of bad debt has by no means peaked. He expects the greatest number of defaults to come by 2002-03. That is simply the nature of debt. It typically takes four years for things to hit the fan. Much of this debt was issued within the past three years.

Nor will it make much difference if the

Fed lowers interest rates, according to Suria. If a company has built its business on the assumption that it can borrow money at 8%-9% interest rates and now faces 20% rates because of a weak balance sheet, a 2 percentage-point rate cut by

Alan Greenspan is not going to save it.

Suria also touched on the question of "collateral damage" to telecom equipment providers like

Cisco System

(CSCO) - Get Cisco Systems, Inc. Report






(GLW) - Get Corning Inc Report

and others. He said that if these telecom companies have relatively little cash left, which is surely the case for many of them, they will try to conserve it as best they can. They need to spend money to maintain operations. They need cash to make interest payments. That leaves less money for capital expenditures. He expects telecom cap-ex to slow further within the next 12 months.

If there was a silver lining for stock investors -- and there wasn't much of one -- it was that there are some better-capitalized telecoms.

Suria mentioned

Time Warner Telecom



Global Crossing



Nextel Communications


. He had nothing terribly positive to say about the more-leveraged




XO Communications


. These, and other New Era telecom stocks, fell after the Lehman call. If Suria is right, they have further to go.

The call ended when Suria was asked by an investor what reaction he had gotten from the companies to his report, which was their worst nightmare. He suggested to the questioner that it would be better to talk about that subject off line. You can imagine that Suria is getting an earful these days for being insufficiently optimistic.

Happy Election Day!

Brett Fromson writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He invites you to send your feedback to