Star Receives $275 Million Funding

STAR Telecommunications, Inc. (NASDAQ: STRX), the seventh largest provider of long distance services in the United States, today announced that it has received a fully underwritten commitment for $275 million in senior secured credit facilities from Goldman Sachs Credit Partners, L.P.

ING Barings and Deutsche Bank have also committed to the facilities and will act as Administrative Agent and Documentation Agent, respectively. The completion of the financing is subject to the execution of definitive loan documents and customary conditions for financings of this type.

The $275 million of facilities will be used to fund STAR's purchase of a nationwide expandable OC-12 fiber backbone connecting 30 major metropolitan areas in the U.S. and STAR's participation as one of four U.S. carriers that have signed as an initial party on the China-U.S. cable. In addition, STAR will utilize the funds to complete its switch build-out in the U.S. and to rollout new switches in France, Switzerland, Austria and additional switches in Germany.

"Obtaining this financing will facilitate the Company's plans to build a first-class international network," said Chris Edgecomb, Chairman and CEO of STAR. "We are pleased to work with Goldman Sachs, ING Barings and Deutsche Bank and view this financing as a milestone in our Company's history."

This deal will represent the first major syndicated commercial loan transaction for a carrier in the emerging International Long Distance segment of the telecommunications market as well as the STAR's largest financing to date. The financing is expected close in late March 1999.

STAR Telecommunications is a leading provider of global telecommunications services to consumers, long distance carriers, multinational corporations and Internet service providers worldwide. The company has become the seventh largest supplier of long distance services in the United States.

STAR provides international and national long distance services, international private line, Internet services, prepaid calling cards, dial around services and international toll free services. The STAR Telecom global network connects over 43 countries worldwide and includes 17 global switching facilities, ownership in 17 transoceanic cable systems and a North American fiber network connecting 30 cities. Visit STAR Telecom at

Except for the historical information contained herein, this press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbors created thereby. The Company's future actual results could differ materially from the forward-looking statements discussed herein. A list of the factors that could cause actual results to differ materially can be found in the documents the Company files with the SEC, including those contained in STAR's prospectus, and the Form 10-K for the year ended December 31, 1997.

In a related story...

STAR Telecommunications, Inc. (Nasdaq: STRX) today announced record revenues and net income for its fourth quarter ended December 31, 1998. These results do not include the company's recent acquisition of PT-1 Communications, Inc. which was completed on February 4, 1999.

Revenues in the fourth quarter totaled $170.0 million, a 40.2% increase over revenues of $121.2 million in the prior year's quarter and STAR's fourteenth consecutive quarter of strong revenue growth. Cost of services decreased as a percentage of revenues from 86.7% in the fourth quarter of 1997 to 82.6% in the fourth quarter of 1998. Net income for the quarter rose to $4.3 million or $0.10 per diluted share, a 106.8% increase over net income of $2.1 million or $0.06 per diluted share, in the fourth quarter of 1997.

Revenues from North American carrier operations increased 22.5% to $140.9 million in the fourth quarter of 1998 from $115.0 million in the fourth quarter of 1997. Minutes of use generated by North American carrier customers increased 64.7% to 509.5 million during the fourth quarter of 1998, compared to 309.4 million minutes of use from North American carriers in the comparable period for the prior year. Revenue from North American commercial operations grew 9.5% to $6.9 million during the fourth quarter of 1998 compared to $6.3 million during the fourth quarter of 1997. The fourth quarter of 1998 also includes revenues from STAR's European operations of $22.2 million.

For the year ended December 31, 1998, total revenues grew to $595.5 million, a 47.2% increase over revenues of $404.6 million for the year ended December 31, 1997. Net income for the year ended December 31, 1998 totaled $13.5 million, or $0.32 per diluted share, compared to net income of $5.8 million, or $0.17 per diluted share for the same period of 1997.

"We achieved several strategic objectives during 1998," said Chris Edgecomb, Chairman and CEO of STAR. "We continue to expand our base of carrier clients, focusing on establishing new customer relationships with PTT's and emerging carriers in deregulating countries throughout Europe and the Pacific Rim. Additionally, we have entered the higher-margin retail market for international long distance services in the U.S. and Europe. Our recent acquisition of PT-1 Communications accelerated our move into the retail channels, and in the coming months of 1999, we will demonstrate the cost synergies and growth opportunities that this combination creates."

Edgecomb added, "During 1998 we entered the German marketplace, establishing four switching centers and initiating the development of a fiber network, which will build on our current position as one of the top ten long-distance carriers in Germany, the world's third largest telecommunications market. In 1999, we plan to augment our European switching network with eight additional switch sites. We've also incorporated subsidiaries in Austria, France, Switzerland and Japan and expect to be licensed in these markets during 1999. STAR's entry into these markets is part of our overall strategy to make STAR the carrier of choice for consumers and multinational corporations worldwide."

Highlights of STAR's operations since the last earnings release include:

PT-1 Communications Acquisition

On February 4, 1999, STAR completed its acquisition of PT-1 Communications, the nation's largest provider of prepaid calling cards. The combination advances STAR's revenue run-rate to an estimated $1 billion per year and diversifies the companies revenue mix to approximately 50% wholesale/ 50% retail.

"We are already experiencing dynamic benefits from the acquisition of PT-1," commented Edgecomb. "We were especially pleased with a recent article in the March 1999 edition of Smart Money that proclaimed PT-1's 101-6868 as the best dial around service." PT-1 also recently announced plans to sell prepaid calling cards over the Internet.

German Expansion On Track

In December, STAR initiated the development of Project Apollo, a planned national German fiber network connecting 23 cities. Once completed, the network will enable STAR to expand its end-to-end telecommunications services throughout Germany, as well as other European countries. As one of the top ten largest long-distance carriers in Germany today, STAR already has extensive partnerships and customers throughout the country. STAR Telecommunications Deutschland became one of Germany's largest competitive toll-free service providers and launched a pilot program to deliver telephone service via television cable networks. STAR also plans to increase its presence as a major trading partner for other carriers in the region.

Network Expansion

During 1998, STAR announced IRU purchases of OC-3 and OC-12 fiber capacity reaching every major metropolitan center in the United States. STAR also announced a major advancement in the deployment of its North American network, as the Company expects to complete its Feature Group "D" tandem CIC deployment by June of 1999, allowing STAR to have ubiquitous origination and termination capability in every local market.

Edgecomb added, "These advancements will allow us to originate 1+, residential, commercial, dial around (101-6868) and toll free calls from anywhere in the U.S." During the year, STAR also began implementing Internet protocol (IP) telephony on its network for routing traffic from its carrier customers, reinforcing its objective of utilizing emerging technologies to meet the demands of next-generation communications providers.

STAR's Chief Financial Officer Kelly Enos added, "Revenue and net income growth remain solid as we continue to balance growth and profitability. We continue to place an increasing percentage of traffic on our proprietary international network, routing to 51 countries at quarter end. The effect of moving this traffic onto proprietary lines is evidenced by our decreasing cost of services, which represented 82.6% of revenue during the fourth quarter of 1998, compared to 86.7% during the prior year's quarter. Our strong revenue growth and prudent cost management resulted in another strong cash flow quarter, with earnings before interest, taxes, depreciation and amortization equaling $12.2 million. We have also recently received a fully underwritten commitment for $275 million in senior secured credit facilities from Goldman Sachs Credit Partners, L.P. which will help fund our capital expenditures and network expansion for the next eighteen months."

Editorial Comments:

STAR Telecommunications is also one of my personal favorites. As you may recall, Goldman Sachs is the (unfortunate) shareholder of a huge amount of USTel stock. I'm sure that their experience with STAR will be much more enjoyable than with USTel. STAR's recent acquisition of PT-1 will be a boon to the company.