Dsc Communications Corporation

This case concerns a difficult credit decision for a company in a dynamic high-tech industry. It can be taught in an advanced MBA banking class or to executives as a comprehensive credit analysis. A B case (UVA-F-1072) provides follow-on material. A teaching note is available to registered faculty, along with a video supplement to enhance student learning. Excerpt UVA-F-1071 Rev. Jul. 13, 2012 DSC Communications Corporation In March 1991, Yousuf Omar, vice president in SouthBank's Corporate Banking Group, was reviewing an opportunity for SouthBank (SB) to bid to become the agent bank in a $ 120 million revolving-credit facility for DSC Communications Corporation (DSC). SB's competition for the agent's position would be Texas Trade Bank (TTB), which had been DSC's lead bank for many years. Despite SB's attempts to displace TTB over the past several years, this was SB's first real opportunity to gain agent status. As agent bank on this deal, SB would quite likely be viewed by DSC as its lead bank, which because of DSC's significant borrowing needs in the future, would put SB in a position of realizing significant fee income in the years ahead. Omar was delighted with the prospect of getting a new client like DSC, but there were a couple of factors that caused him to worry about DSC's creditworthiness. His first concern was the fact that although sales had grown at a compound annual rate of 27.4% over the past four years and had reached a record level of over $ 500,000 in 1990, profits for 1990 had fallen below the 1989 level. In addition, Omar was concerned about DSC's long-term debt to equity ratio, which had grown to 92.7% at year-end 1990 from 49.7% in 1988. On the positive side, it appeared as though DSC was well positioned in the telecommunications services industry and should be able to realize continued growth in both sales and profits in the years ahead. Telecommunications Services Industry . . .