Replies to post #54 on High-yield/macroeconomics (fka YIELD)

[rfj1862]

Speaking of EGLE, did you listen to this conference:

http://investorshub.advfn.com/boards/read_msg.asp?message_id=22595630

[Democritus_of_Abdera]

Abreis, Re: Iowa Telecom...

You mentioned last September that you were watching IWA (Iowa Telecom). I’ve decided to invest in this issue to capture its high yield (at $15-16, the yield is in excess of 9%) .

I believe the dividend to be safe in the near term for the following reasons:

1. Approximately 90% of the debt is fixed rate until November 2011. As of September 30, 2007 IWA had $477.8 million of senior debt outstanding under the term facilities and $8 million drawn from a $100 million revolving credit facility (offset by 7.8 million of RTFC Capital Certificates and 4.5 million of cash). The total debt was 473.5 million for a leverage ratio of approximately 3.6 times... Note, however, that the debt comes due in November 2011 and will need to be refinanced before then.

2. Anticipated capital expenditures should be covered by cash flow (the 2007 capital expenditures will be between 25 and 27 million). I don’t expect much growth, this is primarily a dividend play. A principle driver is the conversion of dial-up modems to DSL. There is new competition in the major cities in the form of VoIP being offered by the local cable company, Mediacom, but I don’t expect this competitive threat to extend into the rural telephony market served by IWA. And, I expect the rural Iowa economy to hold up well in the face of a weakening dollar largely because I expect corn prices to remain strong.

3. Current interest payments are covered by cash flow; albeit, this favorable situation might not last long. Current interest obligations of about $26M/yr will double in 2009-2010(and may be substantially higher when the debt is refinanced in 2011).

4. The tax yield position is strong, driven by continued goodwill amortization at the rate of approximately $40 million per year through June 2015, coupled with an existing net operating loss of approximately 158 million.

All-in-all, I was comforted by the following quote by Craig A. Knock, Vice President, Chief Financial Officer and Treasurer at the Nov 11, 2007 Q3 Earnings Call:

“Now, I’d like to summarize our cash sources and uses for the last 12 months as it demonstrates the strength of our ability to pay dividends. Starting with adjusted EBITDA of 131.3 million and deducting cash interest expense of 31.5 million, capital expenditures of 27.5 million and cash income taxes of 804,000 results in 71.4 million in cash available for dividends. At our dividend rate of $1.62 per share, we paid dividend of 51.4 million. Thus, for the trailing 12 months, our payout ratio of our free cash flow was approximately 72%.... It is also equally important to note, that as on September 30, 2007, with cumulative distributable cash or actual dividend capacity as defined in our credit agreement of 76.3 million. Or said in another way, nearly 1.5 years dividend requirement.”