Equinix paper weathers Hindenburg position; Altice, CSC bonds slide on ramped-up volume

By Cristal Cody

Tupelo, Miss., March 20 – Equinix, Inc. found itself in focus on Wednesday on the release of a report from short seller Hindenburg Research and on the heels of a bond offering announced and terminated in the same session.

Hindenburg Research headlined the report as “selling an AI pipe dream as insiders cashed out hundreds of millions.”

“Equinix is an $80 billion market cap data center REIT with over 260 facilities globally,” according to the firm, which disclosed it has taken a short position in Equinix shares. “Even if you ignore the findings of our investigation and take the financials of Equinix at face value, the company trades at elevated levels; an 86% premium to its peers on a price to forward adjusted funds from operations basis and a 59% premium on a price to forward funds from operations basis.”

Shares fell 2.33% over the day.

Equinix’s 3.4% senior notes due 2052 (Baa2/BBB/BBB+) traded on Wednesday over 1¼ points lower on the week in light activity.

The yield has climbed from under 5¼% at the end of 2023 to nearly 5¾% this week.

Equinix said in a statement provided to Prospect News that the company takes the allegations seriously.

“We are aware of the report and in the process of reviewing claims made therein,” Equinix said. “We will report back once that review is complete, as appropriate. We remain confident that our distinctive advantages create significant long-term opportunity for Equinix and continue to see Equinix as highly relevant to customers as they pursue their digital transformation agendas and deploy distributed, hybrid and multi-cloud infrastructure as the preferred architecture of choice.”

Hindenburg cited an investigation that included a review of financial and litigation records and interviews with 37 former Equinix employees, industry experts and competitors that revealed “Equinix manipulates its accounting for AFFO, the key profitability metric for REITs.”

Hindenburg reported creative maneuverings, including “how Equinix would seek new serial numbers for refurbished equipment in order to recognize the old repaired item as new and book it as growth CapEx.”

Equinix had announced an offering of euro-denominated senior notes in a 424B4 filing that was posted Wednesday with the Securities and Exchange Commission, but Fitch Ratings said later in the day it withdrew the ratings after the “bonds were canceled.”

The notes would have been issued by Equinix’s indirect wholly owned subsidiary, Equinix Europe 2 Financing Corp. LLC, and unconditionally guaranteed by parent Equinix.

Meanwhile, more corporate defaults are expected this year, Lyuba Petrova, managing director at Fitch Ratings, said in a statement following the Federal Reserve’s rate decision.

“Wednesday’s FOMC’s decision supports our expectation that rates will remain higher for longer,” Petrova said. “The stress from prolonged higher cost of capital is evident as default volumes continue to rise. So far in 2024, we have seen $14.5 billion and $5 billion of loan and bond defaults, respectively.”

Fitch expects default rates to finish 2024 at 3½% to 4% for loans and 5% to 5½% for bonds.

The Federal Reserve said it chose to maintain the Federal Funds rate at 5¼% to 5½%, noting in the Federal Open Market Committee statement that “it does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”

Stocks closed higher following the decision, and the Fear Factor index receded.

The Nasdaq and the Dow both rallied over 1%.

The CBOE Volatility index declined 5.64% to 13.04.

The iShares iBoxx High Yield Corporate Bond ETF added 26 cents, or 0.34%, to $77.82.

Elsewhere, dollar paper affiliated with Altice France Holding Restricted Group plunged in heavy secondary trading on Wednesday following the release of fiscal 2023 results.

Altice USA, Inc. and subsidiary CSC Holdings, LLC’s notes sank around 7 points to 18 points on $176 million of paper traded.

The 10½% notes due 2028 (Caa2/CCC) plunged 18 points on $40 million of paper changing hands over the session.

Altice USA’s bonds have been volatile this year and saw heavy trading action in February on market chatter that Charter Communications Inc. was considering a merger with the distressed cable operator.

Equinix softens

Equinix’s 3.4% senior notes due 2052 (Baa2/BBB/BBB+) traded on Wednesday over 1¼ points lower on the week on a 68 bid handle, a source said.

The yield has crept higher this year, ending 2023 at 5.16% and hitting over 5½% by February and moving closer to 5¾% this week at a print of 68.30 to yield 5.677%.

The company announced on March 12 that effective late in the second quarter, the current president and chief executive officer, Charles Meyers, will transition to executive chairman. Google Cloud Go-to-Market president Adaire Fox-Martin will take on the president and CEO role.

Equinix has more than 10,000 customers, ranging from small businesses to large cloud providers including Amazon, Microsoft and Google, according to the Hindenburg report.

“We estimate that Equinix’s manipulation of maintenance CapEx has resulted in a cumulative $3 billion boost to reported AFFO since 2015,” the firm said. “Equinix’s questionable AFFO accounting has contributed to an estimated $295.8 million in stock award grants to top executives who have personally benefited from these accounting games.”

Shares (Nasdaq: EQIX) in the Redwood City, Calif.-based digital infrastructure company fell $19.70, or 2.33%, to $824.88.

CSC bonds sink

Altice France’s 6% senior notes due 2028 (Caa2/CCC) slid 15 7/8 points to 43½ bid with a 32.61% yield on $18 million of volume on Wednesday, a source said.

Altice France’s 10½% notes due 2027 (Caa2/CCC) plunged 18 points to 54½ bid with a 35.63% yield on $40 million of trading.

Altice France SA’s 5 1/8% senior secured notes due 2029 (B2/B-) fell over 7¼ points to 72¼ bid and a much lower yield of 12.41% on $31 million of notes changing hands.

The bonds were easily among the day’s most active issues in the junk and distressed spaces after Altice France reported a strong focus on deleveraging the balance sheet and total pro forma net debt of €24.3 billion at the end of the fourth quarter.

Altice France said total fiscal 2023 revenue was down 1.3%, while total EBITDA declined 4.3% for the year.

Subsidiary CSC Holdings’ bonds traded down around 1 point to over 2 points in lighter trading, while Altice’s junk paper fell over 2 points to more than 5 points by the close.

CSC’s 5¾% senior notes due 2030 (Caa2/CCC) shed 2¼ points to head out at 56 bid with a 18.37% yield on $4 million of volume.

The New York-based broadband communications company’s stock (NYSE: ATUS) closed up 5.36% to $2.75.

Distressed returns higher

S&P U.S. High Yield Corporate Distressed Bond index one-day total returns improved on Tuesday to 0.19% from minus 0.13% on Monday.

Month-to-date total returns increased to 1.44% versus 1.24% at the start of the week.

Year-to-date total returns rose to 4.09% on Tuesday from 3.89% on Monday.

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