Lumen Technologies Inc. is offering to conduct a debt swap in what one analyst says is management’s attempt to “fight it out” amid growing doubts about the telecom company’s ability to run its business despite a heavy debt burden.
“We don’t typically write about a relatively small exchange offer, but the nature of Lumen’s capital structure dictates that we pay even more attention to debt than we have in the past,” wrote Nick Del Deo, analyst at SVB MoffettNathanson. in a note to customers. “And this morning’s exchange offer struck us as quite interesting.”
Shares of Lumen, formerly known as CenturyLink, have come under severe pressure in recent years amid challenges to the company’s legacy fixed-line business. The company’s debt has also sold off sharply and is the focus of attention on Wall Street, Del Deo noted.
See more: Lumen’s stock follows this year’s record annual decline with another steep plunge
“Many of [Lumen’s] Parent company bonds are now trading at yields in the high teens or above,” he wrote. “The credit market is signaling that it believes the chances of a financial restructuring in the coming years are very high.”
With the debt restructuring, through which Lumen is offering to issue up to $1.1 billion in new 10.5% Level 3 Notes maturing in 2030, Lumen appears to be “taking the opportunity to reallocate some of its debt, while there’s still an opportunity,” Del Deo said.
Analysts at Moody’s wrote in a February note that downgraded Lumen’s corporate family rating from Ba3 to B2 that Lumen has “significant debt maturities beginning in January 2025 that will increase to over $9 billion in debt maturing in 2027.”
While it’s unclear how the supply will play out, Del Deo’s assumptions suggest that the company’s “debt maturity profile” would shift from 2025 to 2025
2026 arguably brings some refinancing risk into a year where 2027 will be a do-or-die year.”
Lumen “seems to strive to clear the decks to give himself the most crowd
Time to execute on his new strategy and deliver results that will allow him to eventually tackle the 2027 maturity wall,” said Del Deo. “Management plans to fight this.”
He titled his note to clients “We Shall Fight on the Beaches,” a nod to British Prime Minister Winston Churchill’s famous wartime speech, and even rewrote portions of the speech to reflect Lumen’s plight.
““I myself have every confidence that if everyone does their duty, if nothing is neglected and if the best precautions are taken, such as are being taken, we will once again prove capable of defending ours [fibrous] home to weather the storm [competition, legacy revenue erosion, technology transitions, and cost pressures]and to survive the threat [debt vigilantes]if necessary for years, if necessary alone.’”
– SVB MoffettNathanson analyst Nick Del Deo and Winston Churchill
Lumen shares continued their declines into Thursday’s trading session, falling 3.9% on the day. Shares have fallen in seven of the last eight trading sessions; The outperformance came Tuesday as stocks ended flat.
The stock is down 52% so far this year after falling 58% over the course of 2022, its worst year on record.
Analysts have questions about Lumen’s ability to revive its business while saddled with a heavy debt burden. One concern, Morgan Stanley’s Simon Flannery wrote Monday, is that Lumen is “needed to make tough investment decisions to manage free cash flow, which may partially explain the slower pace of fiber build-out, potentially further weakening Lumen’s competitive position.”
Del Deo said Thursday he was “skeptical of Lumen’s ability to deliver a radical shift in business performance and growth trajectory,” though the debt restructuring offer “makes sense to improve financial flexibility and buy time in a very challenging credit environment.”
The Lumen debt exchange reveals the company’s plans to “fight out” amid investor doubts.
Lumen Technologies Inc. is offering to conduct a debt swap in what one analyst says is management’s attempt to “fight it out” amid growing doubts about the telecom company’s ability to run its business despite a heavy debt burden.
lumens LUMN,
-3.86%
said in a morning news release that Level 3 Financing, a subsidiary of the Company, has begun offers to issue senior secured notes in exchange for senior unsecured notes from Lumen.
“We don’t typically write about a relatively small exchange offer, but the nature of Lumen’s capital structure dictates that we pay even more attention to debt than we have in the past,” wrote Nick Del Deo, analyst at SVB MoffettNathanson. in a note to customers. “And this morning’s exchange offer struck us as quite interesting.”
Shares of Lumen, formerly known as CenturyLink, have come under severe pressure in recent years amid challenges to the company’s legacy fixed-line business. The company’s debt has also sold off sharply and is the focus of attention on Wall Street, Del Deo noted.
See more: Lumen’s stock follows this year’s record annual decline with another steep plunge
“Many of [Lumen’s] Parent company bonds are now trading at yields in the high teens or above,” he wrote. “The credit market is signaling that it believes the chances of a financial restructuring in the coming years are very high.”
With the debt restructuring, through which Lumen is offering to issue up to $1.1 billion in new 10.5% Level 3 Notes maturing in 2030, Lumen appears to be “taking the opportunity to reallocate some of its debt, while there’s still an opportunity,” Del Deo said.
Analysts at Moody’s wrote in a February note that downgraded Lumen’s corporate family rating from Ba3 to B2 that Lumen has “significant debt maturities beginning in January 2025 that will increase to over $9 billion in debt maturing in 2027.”
While it’s unclear how the supply will play out, Del Deo’s assumptions suggest that the company’s “debt maturity profile” would shift from 2025 to 2025
2026 arguably brings some refinancing risk into a year where 2027 will be a do-or-die year.”
Lumen “seems to strive to clear the decks to give himself the most crowd
Time to execute on his new strategy and deliver results that will allow him to eventually tackle the 2027 maturity wall,” said Del Deo. “Management plans to fight this.”
He titled his note to clients “We Shall Fight on the Beaches,” a nod to British Prime Minister Winston Churchill’s famous wartime speech, and even rewrote portions of the speech to reflect Lumen’s plight.
““I myself have every confidence that if everyone does their duty, if nothing is neglected and if the best precautions are taken, such as are being taken, we will once again prove capable of defending ours [fibrous] home to weather the storm [competition, legacy revenue erosion, technology transitions, and cost pressures]and to survive the threat [debt vigilantes]if necessary for years, if necessary alone.’”
– SVB MoffettNathanson analyst Nick Del Deo and Winston Churchill
Lumen shares continued their declines into Thursday’s trading session, falling 3.9% on the day. Shares have fallen in seven of the last eight trading sessions; The outperformance came Tuesday as stocks ended flat.
The stock is down 52% so far this year after falling 58% over the course of 2022, its worst year on record.
Analysts have questions about Lumen’s ability to revive its business while saddled with a heavy debt burden. One concern, Morgan Stanley’s Simon Flannery wrote Monday, is that Lumen is “needed to make tough investment decisions to manage free cash flow, which may partially explain the slower pace of fiber build-out, potentially further weakening Lumen’s competitive position.”
Del Deo said Thursday he was “skeptical of Lumen’s ability to deliver a radical shift in business performance and growth trajectory,” though the debt restructuring offer “makes sense to improve financial flexibility and buy time in a very challenging credit environment.”
Source : www.marketwatch.com