Lumen up ahead of earnings report; company skips revenue guidance; Spirit Airlines gains

By Cristal Cody

Tupelo, Miss., Feb. 6 – Paper from Lumen Technologies, Inc. subsidiary Level 3 Financing, Inc. saw light trading on Tuesday ahead of its fourth-quarter earnings report released after markets closed.

Bonds from both issuers sank in January on Lumen’s announcement of an amended transaction support agreement reached with creditors and bondholders.

Lumen’s 4% senior secured notes due 2027 (Caa2/CCC-/CCC-) picked up ¾ point on nearly $6 million of volume over the day.

Level 3’s 4¼% notes due 2028 (B3/CC/CCC+) were quoted off more than 1 point in thin activity.

Lumen reported heavy fiscal 2023 losses and lower revenue.

In a conference call with investors and analysts on Tuesday after earnings were released, chief financial officer Chris Stansbury said the company is “not guiding revenue at this point” on the heels of the TSA.

“The revenue piece is going to be choppy as we go forward,” he said. “It’s a little too early, so we’ve chosen to stick to EBITDA.”

Market tone was widely improved on Tuesday after Monday’s sell-off with stock indices higher.

The iShares iBoxx High Yield Corporate Bond ETF added 28 cents, or 0.36%, to $77.11.

The CBOE Volatility index receded 4.5% to 13.06.

Treasury yields pumped the brakes on Monday’s climb and are expected to continue to drop this year.

The benchmark 10-year note yield, up 13 basis points on Monday, declined 7 bps to 4.09%.

“Technical analysis indicates that the recent downward shift is putting an end to a four-year upward trend in rates,” Piper Sandler & Co. analyst Wei Min Li said in a note released to Prospect News.

Piper Sandler expects the benchmark 10-year Treasury yield to settle around 3.25% in the next quarter.

BNP Paribas Securities analysts said in a note on Tuesday they expect the Federal Reserve to make its “first cut of the cycle at the May FOMC meeting.”

Meanwhile Tuesday, Spirit Airlines Inc.’s 8% senior secured notes due 2025 rose 3/8 point to 5/8 point on over $21 million of paper traded in one of the most active distressed names over the session.

The company is gearing up for an appeal after a judge blocked its $3.8 billion merger with JetBlue Airways Corp. in January that initially sent the bonds tumbling to handles in the 40s.

Spirt Airlines plans to release fourth-quarter results and its outlook on Thursday.

Lumen, Level 3 mixed

Lumen’s 4% senior secured notes due 2027 (Caa2/CCC-/CCC-) picked up ¾ point to head out Tuesday at 46 bid on nearly $6 million of volume, a source reported.

Lumen’s 4½% senior notes due 2029 (Caa3/CCC-/CCC-) were not active early in the session but later in the day traded with a 24 bid handle on $2 million of volume.

Level 3 Financing’s 4¼% senior notes due 2028 (B3/CC/CCC+) were quoted off more than 1 point at a 34 bid handle in thin trading, another source said.

Lumen reported on Jan. 25 that it reached an amended TSA with subsidiaries Level 3 and Qwest Corp. with transactions in the first quarter expected to include $1.33 billion in new-money long-term senior secured first-lien debt by Level 3, an approximate $1 billion new revolving credit facility at Lumen, the extension of maturities to mostly 2029 and the repayment of some of the debt from Lumen and Qwest.

The outside date of completion for the transaction support agreement is Feb. 29, which may be extended to March 31.

Lumen on Tuesday reported a smaller net loss of $1.99 billion in the fourth quarter that was improved from a net loss of $3.07 billion in the fourth quarter of 2022.

However, losses remained heavy for the full year. Lumen reported a 2023 net loss of $10.3 billion versus a 2022 net loss of $1.55 billion.

Fourth-quarter revenue fell 7% to $3.5 billion, while fiscal 2023 revenue declined 17% from the prior year to $14.56 billion.

Lumen said it reduced its net debt by $1.6 billion in 2023.

In the conference call with investors and analysts on Tuesday after its earnings were released, Stansbury said the amended TSA when finalized will address approximately $9 billion of Lumen’s debt, including more than 70% of maturities through 2027.

“Our capital structure is no longer an eliminating favor in our transformation,” he said.

The TSA is expected to be completed in the first quarter.

Lumen president and chief executive officer Kate Johnson said on the conference call the “clarity” of having the updated and amended TSA has been instrumental since it shifts most of the bond maturities to 2029 and allows the focus to be on its “transformation efforts.”

“I think we’re in a good spot,” she said.

Lumen’s outlook for its 2024 adjusted EBITDA is $4.1 billion to $4.3 billion.

Shares (NYSE: LUMN) in the Monroe, La.-based global telecommunications company closed up 4.65% to $1.35 on Tuesday.

Spirit bonds up

Spirit Airlines’ 8% senior secured notes due 2025 rose 3/8 point to 5/8 point on over $21 million of paper traded on Tuesday, a source said.

The bonds went out up 3/8 point at 65 5/8 bid on $14.5 million of volume.

The issue has rebounded from a low of 47½ bid, 48½ offered after a court ruling blocked its $3.8 billion merger with JetBlue Airways on Jan. 16.

The U.S. District Court of the District of Massachusetts granted the U.S. Department of Justice’s request for a permanent injunction against the proposed merger of Spirit and JetBlue.

JetBlue and Spirit Airlines announced Jan. 19 they filed a notice of appeal.

The U.S. Court of Appeals for the First Circuit said it will contemplate a June hearing on the matter with the companies ordered to file a pre-hearing brief by Feb. 26 and the Department of Justice ordered to file its response by April 11.

The Miramar, Fla.-based low-cost airline’s stock (NYSE: SAVE) climbed over 13% on Tuesday to $7.08.

Distressed index declines

S&P U.S. High Yield Corporate Distressed Bond index one-day total returns dropped to minus 0.53% on Monday, down from negative 0.34% on Friday but improved from the minus 0.94% reading in the same session a week ago.

Month-to-date total return losses widened to negative 0.72% on Monday from 0.2% on Friday.

Year-to-date total returns declined to minus 2.86% amid a wide market sell-off on Monday from minus 2.35% on Friday and negative 2.33% in the week-ago session.

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