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Bond Market News
Lumen’s Cut to CCC-; Some Creditors Question Financing Deal
November 3, 2023
Lumen Technologies was downgraded to CCC- from B-. This comes on the back of the disclosure of its transaction agreement for a maturity extension that could result in a distressed debt exchange (DDE) for Lumen and its Level 3 entities. It was reported that Lumen’s creditors have agreed to provide $1.2bn of financing via a long-term senior secured first lien to be incurred by its Level 3 Communications unit. However, Fitch notes that this transaction would not solve a “potentially unsustainable capital structure combined with fundamental operating pressures”. Lumen reported weak results as per Fitch, and the rating agency also believes that its leverage could trend higher, adding to the pressure of meeting its debt maturities.
Separately, some creditors who were not privy to the negotiations struck for Lumen’s $1.2bn transaction agreement are upset given the uncertainty about their holdings, as per Bloomberg. Sources said that Lumen struck the deal with companies like Silver Point Capital, PIMCO, Diameter Capital Partners and BlackRock whilst leaving out some other creditors. These creditors are said to be unsure about whether they will be allowed to participate in the restructuring, and the implications on their debt if they cannot. Lumen has a total debt of ~$20bn and the agreement was made with holders of $7bn of its debt. Bloomberg notes that creditors sold Level 3’s bonds yesterday with trading desks separating bonds that are part of the restructuring deal and those that would be left behind.
Lumen’s bonds were broadly weaker across the curve by 1-3 points – its 5.625% 2025s were down 2.7 points to 86.73, yielding 16.6%.
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