Debt as Growth Accelerant

"While Elroy had been seemingly indifferent to or unaware of the risks of his highly leveraged transactions, Craig thought through every awful consequence. If he borrowed big, the lenders would require strict adherence to financial performance. He would have to reach so much profit, have so many customers, use the dollars to build so many assets. If the economy turned down, if a manager failed, if a town council proved stubborn about rates, he could get in trouble. Because his system would be built on the promise of ever larger cash flow, he worried about combinations of bad events wrecking his plans. McCaw mulled over every possible turn for the worse and consid- ered his options—his future chess moves. Competitors and business associates marveled at his guts, but it was never simple daring. McCaw saw fear of failure as another motivation to plan well and think hard. "There are the times when you really have to become good because you're scared to death and you know what can happen," McCaw says. "It's like walking on a tightrope. In the good times, you can only fall six inches. In the bad times, you can fall a hundred feet. So you know that, at those times, you can't fail.""

"A company joke had it that McCaw grew his company to justify ever bigger airplanes. In truth, McCaw needed to grow—or the house of debt would collapse."

"Now McCaw told Milken that McCaw Communications wanted help to buy more cellular licenses. But Milken saw a new threat to Craig McCaw. "You're exposed," Milken said. McCaw was trying to grow two capital-intensive businesses at once while facing deeper-pocketed competitors on both fronts. He couldn't grow in both cable and cellular for long. Milken warned McCaw that his company was too deeply in debt. There was an irony—the foremost apostle of debt telling Craig McCaw that his financial strategy was too risky. According to Perry, McCaw didn't show much reaction. He just took it in thoughtfully and said merely, "Hmm. Okay." But Milken was right. The Southwestern buyout of Metromedia's cellular business showed how the bigger boys were prepared to snatch licenses that McCaw needed. Previously, McCaw had been annoyed by industry talk that his company was spread thin. To his face, the chair- man of PacTel had called his company a "house of cards." "I was tired of hearing about how much leverage we should take," McCaw says. Hearing the same message from Milken gave it a new urgency; it "hit McCaw right between the eyes," Stanton said later. McCaw had to focus his company on one business or the other."