[TheJuice blogs about his financial models and projections for telecom companies, most frequently about Level 3 Communications. Do you want a turn at the microphone? Contact the webmaster]
Hello all. I thought due to the recent LVLT debt activity it would be a good time to update my valuation metric. As you can see the debt has moved up BIG TIME, from .70 cents on the dollar to .90! Wow.
Congrats to those that bought low and didn’t sell. With the new numbers out I have a question, for those that read the blog – Dan Caruso, Dave Rusin and Rob Powell if you comment I would be quite excited.
“Should I use the face or market value of the debt in my IV calculations?”
I like to do ev/ebitdas calculations using the following formula:
(((Debt minus Cash)+Equity Value)/Annual Current Year EBITDAS estimate)
Of course this raises the question for the debt portion of the equation, which is should you use face or market value. I look at both but tend to focus more on face value, as does our analyst friend at Morgan Stanley. Any thoughts?
Post Script: Mr. Caruso, if you read this I wanted to again thank you for the awesome blog series on your valuation metric. I am going to use your formula and I’m debating about using your metric of “annualizing ebitdas 3 quarters from now” instead of my annual current year EBITDAS estimate.
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I think it is necessary to look at both calculations, i.e. using the market price of the debt and the full value. While it is in the nature of financial analysis to distill a single number to represent a company when at all possible, no single number can ever really give us what we need.
Word on the Street (Eldorado Blvd) is that Level 3 lost the longstanding Commonwealth of PA contract that was a longstanding relationship from the TelCove acquisition. That has got to hurt!
This sort of rumor would fit better in the forums! FWIW, I’ve heard this rumor every 6 months for the past 2 years.
market value
Thanks Juice. What are your thoughts on whether your 09 EBITDA forecast is achievable. Most research I’ve seen has EBITDA this year coming in below $1B
ronin;
im going to go back and firm up the numbers. ill let you know as we get closer to the date. i need to re-listen to a few of the investor presentations to make sure im up-to-speed. unless we see a deal with sprint, depending on the details, im just not sure that we are going to trade at a higher multiple than 7-7.5. keep in mind T & VZ which are the closest thing to a monopoly in the us, only trade at 3-4 and TWTC trades around 5-6. further, in recent transactions that ive seen – and i have not seen a whole lot, i believe those deals went off, with strategic buyers, around 7 times. so we’re already there.
I agree with the people wearing the green shaded visors — face value.
Whenever I hear debt and market value together I get flashbacks to such things as Enron, Adelphia, WorldCom, Global Crossing, Home Mortgages packaged up in an after market, et al.
Market value for debt is subjective and can be manipulated. Unless you would enjoy a max prison under certain circumstance (ie. off balance sheet market valued debt or levered value) — go for it.
I’ll stay with face value and enjoy the comfort of my home.