Network Operators Pounce On Refinancing Window

August 12th, 2013 by · 27 Comments

Some favorable windows in the credit markets are easier to spot than others, but when three US network operators look to squeeze through on the same day it’s not too difficult. Windstream, tw telecom, and Level 3 Communications each announced substantial balance sheet maneuvers today.

Windstream kicked off a tender offer this morning for its 7.0% notes due 2019, and simultaneously announced a private offering of 7.75% notes due 2021. Both are for $500M, as Windstream looks to push out a piece of its debt for another two years. The effective rate will apparently be a bit higher on the new debt even after the issuance price of 103.5% of par, but they’ll also be eliminating all the restrictive covenants.

For its part, tw telecom is tendering for $400M of its 8.0% senior notes due 2018 while looking to sell $800M in two parts, half being senior notes due in 2022 and the other half being more senior notes due in 2023. While I’d love to speculate that the extra $400M indicates they’re about to buy something, most is simply going to replace the $196M in cash they used to buy back their convertible debt last quarter and power the renewed $500M stock buyback program they announced last week.

And Level 3 took a quick swipe of the axe to the interest on its Tranche B 2019 Term Loan with another refinancing that was announced after the markets closed. The maturity will remain at August 1, 2019, and the pricing will be at par, but the interest rate will come down from LIBOR+3.75% with a minimum LIBOR of 1.5% to LIBOR+3.00% with a minimum LIBOR of 1.0%. That will save them $10M in cash interest expense annually going forward, but will add a one time $0.04 per share expense to Q3 earnings.

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Categories: Financials · ILECs, PTTs · Internet Backbones · Metro fiber

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27 Comments So Far

  • CarlK says:

    As Level 3’s credit rating continues to be upgraded towards “investment grade,” even inside of a rising interest rate environment, their mammoth debt load that has created a prolific asset contained in $40B PP&E still growing, will continue to be a perpetual gift of giving.

  • schmuckinsurance says:

    I hate to say it but ABC please put your boy Carl in his place.

  • ABC says:

    Come on now, even I can recognize a good thing. The interest savings should push LVLT to at least $24/share. Party time! Bonuses for everyone I say…wait, that happens regardless.

    But do you feel getting better terms on LVLT’s mountainous debt will help motivate their salesforce to try and increase CNS revenues? Or are they still striving for that apparently unattainable 2% revenue growth they have been touting as a goal for years now? How is wholesale doing with LVLT btw? TIA

    • CarlK says:

      Wholesale CNS revenue declined 0.8% sequentially, an improvement from the 3.8% decrease we saw in the first quarter of 2013. During the quarter, we did see the full effect of the carrier customer disconnect we mentioned last quarter.

  • ABC says:

    Yep, those pesky “one time” big wholesale disconnects. When they say “one time” I assume they are talking about every year/quarter. A lot of semantics with these clowns at LVLT…be careful.

    • CarlK says:

      The $595.5 million Tranche B 2020 Term Loan will bear interest at LIBOR plus 3.00 percent, with a minimum LIBOR of 1.00 percent, and will mature on Jan. 15, 2020. The term loan was priced to lenders at par. The Tranche B 2016 Term Loan has an interest rate of LIBOR plus 3.25 percent, with a minimum LIBOR of 1.50 percent and a maturity date of Aug. 1, 2016. With the expected reduction in interest rates as a result of this transaction, the company anticipates saving approximately $4.5 million of cash interest expense on an annualized basis.$595-5-Million-Tranche-B-2016-Term-L-17195599/

      • Meh says:

        And how much did they have to pay upfront to save this $4.5 million? Even if it was free (and it wasn’t), this amounts to 2 cents per share of annual interest savings. The real reason LVLT did this is because they want to lengthen the runway and hedge against future interest rate increases. CarlK, if you get excited about 2-cent annual interest savings, how are you going to feel if the interest rate environment changes and their rates begin increasing?

        • CarlK says:

          Have you done the math calculation with respect to changes in underlying benchmark LIBOR along with the overall macro interest rates which might affect Level 3 more negatively than positively?

          Otherwise, I must point you to my opening statement which surrounds Level 3 heading towards copious free cash flow positive in the months and years ahead:

          As Level 3′s credit rating continues to be upgraded towards “investment grade,” even inside of a rising interest rate environment, their mammoth debt load that has created a prolific asset contained in $40B PP&E still growing, will continue to be a perpetual gift of giving.

          • Anonymous says:

            LVLT has 8.1b in PP&E. Undoubtedly, you have some wacky theory on how you get to 40b. Hopefully, you’re not counting cumulative depreciation during LVLT’s existence.

            Please don’t make up figures that have no grounding in GAAP or financial analysis principles.

  • ABC says:

    Will those 40b of PP&E assets help to keep the stock above $22 a share?

    • CarlK says:

      Smarter men than me have pegged this company’s IV at $60 pps more than two years ago in concert with the Global Crossing acquisition announcement. That IV has appreciated since that time because “leased fiber” pathways to “competitors” in order to reach global eyeballs are closer to expiry, and network investments have continued to be made.

      Who other than The Level (3) Fiber Baron will any of them call going forward?

      There are some who say that if the Level 3 Network could be duplicated today–it can’t–it would cost $23B to do so in today’s dollars.

      Coincidentally or not, that’s $60 pps on a fully diluted basis. Maybe the bear pundits who permeate places like this, will finally be woken up by that “Telecom Shot Heard Round the World”? Who will be found naked when the TIDE does go out?

      “stevie” cohen has started a new position this Q, but where are his shorts being disclosed?

      Jefferies Group, historically bearish and indifferent over Level 3, has also created a new, nicely weighted position as well. You should investigate the “history” of Leucadia National (LUK), Jefferies “holding company” today, for insight into Level 3’s new CEO, a Dr. of Telecom, Mr. Jeff Storey, who maintains “Wiltel” genes.

      Finally, the Sultan of Swing who only swings at FAT PITCHES according to Ted Williams’ “strike zones” has now filed for permission with the SEC to be exempt from reporting an undisclosed “position” publicly, and only with them.

      Confidential information has been omitted from the public Form 13F report and filed separately with the U.S. Securities and Exchange Commission.

      Got ahead and swing bears, swing, because I only need to be woken up at $40 pps, assuming Dr. Storey says to sell and place your positions in hell! He is on RECORD saying that, you know!

      Hell, even Icahn with his Corvex protege, Keith Maister, who has moved up into the 6th place ownership spot June 30th’s end, might blow a whistle on “stevie” cohen’s short stake that is still undisclosed. And, soon after Icahn buys Level 3 shares, Soros will follow. 🙂

      • Carlk's dog says:


        I noticed you didn’t take the yellow pill this morning. I’m a little concerned…. am I in your will?

      • Meh says:

        The idea that LVLT is valuable simply because they’ve sunk a lot of capital in their business makes no sense. You know that phrase “good money after bad”? That’s LVLT for you.

        • LVLT's Transformationally Challenged says:

          Excellent point, Meh.

          And for all Carlk’s babbling on about Warren Buffet and Ben Graham, he ignores a simple rule they live(d) by as summarized in Buffet’s 1980 newsletter to Berkshire shareholders:

          “…a silly purchase price for a block of stock in a corporation can negate the effects of a decade of earnings retention by that corporation.”

          This in a nutshell is LVLT’s problem. They have great assets, but they paid top dollar for them. Included in the price tag of the assets LVLT has purchased is the expected synergy or operational efficiencies they expect to enjoy by combining companies.

          This means that LVLT (a) must squeeze out 100% of the expected efficiencies just to break even on their acquisitions and (b) must find ways to enhance the asset’s value beyond the initial deal’s expectations to create incremental shareholder value.

          Unfortunately, LVLT has never transformed an asset beyond the purchase price value. This explains why LVLT stock stagnates year after year at the same price range, even though they keep making acquisitions.

          Although technology companies (of which I do not include LVLT) also pay top dollar for assets, they find ways to integrate (or transform) the acquired assets to create cash flows that exceed the purchase price.

          Level 3’s size has grown considerably over the last 10 years from all its acquisitions but so too have the number of outstanding shares. Normalizing for splits Level 3 has 8x as many shares outstanding today as they did in 2003, yet the stock price has stagnated. (Actually, it’s significantly less than the 2003 price.)

          As long as LVLT pays top dollar for target companies it purchases, the stock price will stagnate.

          Sure, Sunit the Magnificent has done a great job of riding the refi train (along with hundreds of other CFOs) as interest rates declined, but that is not transformational. Those moves have merely kept LVLT in the game.

  • CarlK says:

    Going DARK until $40 pps. It won’t be that long of wait. IMO

  • ABC says:

    See you in 5-10 years then. That is nothing in LVLT time the way these clowns operate.

  • Anonymous says:

    Can we please get the same commitment from ABC until L3 goes to $10?

    • Anonymous says:

      I like ABC. Unlike Carlk’s comments which make you believe English is a second language for him, ABC’s are clear and concise.

      Carlk’s comments don’t warrant a first read, let alone a second and third which are needed to unencrypt every message containing obscure meandering references, abused quotation marks, random CAPs, and prose that would make my 6th grade teacher, Sister Theresa, at Our Lady of Mercy pull out the ruler for a much deserved knuckle thwapping.

  • ABC says:

    And then not have a voice of reason on board? Don’t you feel this company has created enough bagholders and lost equity and lives hurt? Do you not care about the average investor? Are you really James Crowe in hiding?

  • Anonymous says:

    ABC’s greatest hits include mentioning the stock price and………….not really sure what other concise and accurate comments that poster has ever made. I have never seen him say anything about the industry, the business, the technologies or the people in any way. ABC classic post “Stock is $19(or wherever it is currently trading), so there.” Can we please get the Carlk giving pledge from ABC?

  • ABC says:

    How about a compromise? If Rob agrees to never post about LVLT again until they reach positive EPS then I will agree to go away until then. Believe me, I would MUCH prefer to talk about real companies…you know, the kinds that actually make money and are cash flow positive and return shareholder value.

    Stock is below $22 by the way…

    • Meh says:

      Level 3 is a real company with real employees. It’s also an important provider. It’s relevant to these boards even if you wouldn’t invest in them.

    • LOL! Why would I want to compromise in a way that leads to less conversation? I like it when folks leave comments, even when they tell me my IQ is comparable to my shoe size.

  • Yuu says:

    Nice article. Thanks for this!

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