Leap Wireless Falls on Financing Worries - TheStreet

Shares of wireless service operator



plunged Tuesday as the company's finances came under renewed scrutiny.

The stock hit a 52-week low of $3.05 early Tuesday before recovering slightly to trade down 20% at $3.20. The latest plunge in the stock came after UBS Warburg cut its rating to hold from strong buy. Morgan Keegan also cut Leap to market perform from outperform.

"The stock is fighting the financial flexibility front today," says Thomas Wiesel Partners wireless analyst Ned Zachar, who rates Leap a buy. Thomas Wiesel Partners hasn't done any underwriting for Leap.

Analysts were cut their ratings on the stock as they grew increasingly worried the company will have financing its cash needs. "While we remain comfortable with Leap's operating model, we have become increasingly concerned with its long-term capital structure and near-term EBITDA covenants on its vendor facilities," wrote UBS Warburg wireless analyst Colette Fleming in a research note. "Specifically, we believe that Leap's results could be very close to its recently negotiated minimum EBITDA covenants beginning in the third quarter of 2002."

Earlier this month, the company handed out pink slips to 50 employees, or 3% of its workforce. Overall, the company expects to save about $6.6 million from cost cutting resulting from job cuts in the first quarter.

But clearly the company needs to do more to shore up its balance sheet. In its 10-Q filing for first quarter, the company warned investors that it needs to raise an additional $225 million and use $200 million on that to "pay down vendor indebtedness or amend or refinance its vendor indebtedness, to meet the total indebtedness to total capitalization covenant under the vendor credit facilities and to provide working capital." It currently carries $1.32 billion in vendor financing debt.

Leap got a break in late March after its wholly owned subsidiary Cricket Communications amended its vendor financing agreements with suppliers









. The amended deal gave Leap a bit of much-needed breathing room as it seeks to improve operating results and ease its cash squeeze.

But much work remains to be done there. "Leap has very little breathing room on its 3Q02 to 1Q03 minimum EBITDA covenants," UBS's Fleming wrote. "We believe that Leap could violate its 1Q03 consolidated EBITDA to cash interest expense covenant."