The financial wizards in Broomfield have been busy lately. In a press release today, Level 3 Communications (NYSE:LVLT, news, filings) announced yet another series of balance sheet moves. It’s always a bit dizzying to read one of these PRs, but it all boils down to this.
- They made a deal with an institution that held some $282M of their convertibles due in 2010, exchanging $200M in new converts plus $78M in cash.
- They have also been very busy in the debt markets lately, and have repurchased some $248M in debt due over the next few years at various discounts for $223M.
What does that mean in the short term? Mainly that Level 3 has made further progress toward lowering the hurdles it has to jump if the debt markets remain stingy for a long time. The new maturity profile:
| 2009 | $60M |
| 2010 | $181M |
| 2011 | $505M |
| 2012 | $306M |
In other words, both 2009 and 2010 are just speed bumps now. With pro-forma cash of $634M and their current projections of positive free cash flow from 2009 onward, 2011 and 2012 seem navigable although I’m sure the company will refinance them rather than deplete its cash if at all possible. That means they are probably all set until 2013, assuming the sky doesn’t fall again.
Of course, in 2013 and 2014 much more debt matures, but you can’t have almost $7B in debt without having a brick wall somewhere in your future, four or five years in the distance is as good as it gets. It should also be noted that the healthier maturity profile wasn’t free. The new debt issued is convertible at $1.80, whereas the debt they exchanged it for was convertible at 7.18 and 134.
But obviously they’d much rather the economy improves long before then so they can take the hammer lock off their capex budget and spend for the real growth they need in order to truly grow into their debt load. They’d also much prefer to be able to participate in consolidation in the sector as well, but whether this incremental step gets them there or not I just can’t tell.
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Financial wizards is right! I can’t seem to get my head around the “issue discount” on the converts being a plus or minus during this “exchange,” i.e., notes for notes? I’ll try a second cup of coffee and see if that works unless you’ll help me, Rob! 🙂
I now see the answer! It’s in the reduced “cash outlay” from $82M to $78M. Second cup helped. 🙂
Better than just standing still … hope is not a strategy.