US telco CenturyLink (NYSE:CTL) subsidiary Qwest plans to sell US$400m of 6.625% notes due 2055 to refinance existing debt.
US telco CenturyLink (NYSE:CTL) subsidiary Qwest plans to sell US$400m of 6.625% notes due 2055 to refinance existing debt.
Qwest has given the underwriters the option to acquire up to an additional US$60m of notes to cover any over-allotments, the Monroe, Louisiana-based parent company said in a statement.
Closing is expected to take place on 21 September 2015 and, provided the application is approved, Qwest anticipates they will begin trading on the New York Stock Exchange within 30 days of the initial issuance.
Qwest plans to use the net proceeds to redeem all US$250m of its outstanding 7.2% debentures due 2026 at a price of 100.302% and some of the US$1bn outstanding of its 6.875% debentures due 2033 at a price of 100.781%. Interest will also be paid.
Merrill Lynch, Pierce, Fenner & Smith, Morgan Stanley, UBS Securities and Wells Fargo Securities are joint bookrunning managers.
CenturyLink was one of many telcos participating in the FCC’s Connect America Fund Phase 2 (CAF 2) to extend broadband in rural areas, accepting US$500m in annual funding to support broadband delivery to about 1.2 million rural households and businesses in 33 states. The telco said it expects to finalise its build-out plan over the coming months and begin construction in early 2016.
Wells Fargo analyst Jennifer Fritzsche said in a recent research note that, according to CenturyLink, the incremental impact of the CAF 2 funding will be US$150m of revenues and cash flow for Q3 2015, US$200m of revenues and operating cash flow for FY2015 and an additional US$0.16 and US$0.21 of adjusted diluted earnings-per-share for Q3 and 2015 respectively.
“We note that while CAF-2 has an immediate benefit to revenue, this is not a pure subsidy as carriers must build out service in underserved markets to provide speeds of 10/1mbps,” she said. “Therefore it should not be seen as a free cash flow windfall as there is an incremental capex impact to satisfy this commitment.”
CenturyLink describes itself as the third-largest telco behind AT&T and Verizon. It provides communications and data services to residential, business, government and wholesale customers in 36 states. The company completed its takeover of fixed-line operator Qwest in 2011 for an enterprise value of US$22.4bn.
