Lumen paper mixed on amended restructuring plans as recovery mulled; market rally fades

By Cristal Cody

Tupelo, Miss., Jan. 25 – Lumen Technologies, Inc. popped in early trading on Thursday after the distressed telecommunications company announced an amended restructuring agreement but pulled back over the afternoon on some of the gains.

Lumen’s bonds were “all over the place” in the secondary market following the news and into the afternoon, a trader said.

Some issues, like the 4% senior secured notes due 2027, were up.

The secured notes improved 1½ points.

Lumen’s 4½% senior notes due 2029 were trading mostly unchanged and down to a 20s handle on Thursday.

“These are senior unsecured,” the trader said. “It depends on how the restructuring works out and what the bondholders end up getting. Lumen doesn’t look like much of a recovery.”

Lumen’s stock jumped over 15% by late morning in heavy trading but pulled back by the close to end more than 2% better.

Optimism spread this week in Lumen’s credit default swap spreads, which tightened over 65 basis points after widening in the prior week.

Lumen’s CDS spreads had moved under the 3,000 bps level in December but moved back out in January.

“A lot these deals have been cut in half or more, so there’s not a lot of paper around in the name anymore,” the trader said.

Paper from Lumen under its former name of CenturyLink Inc. and from subsidiary Level 3 Financing, Inc. were among the weakest names in the prior week, according to market sources.

The bonds have shed over 10 points in the prior two weeks, according to a BofA Securities Inc. research note.

Both Lumen and subsidiary Level 3 Technologies are listed as default candidates by BofA.

Other telecoms on the default candidate list include Telesat Canada, which was quiet in the secondary market on Thursday, a source said.

The BondBloxx USD High Yield Bond Telecom, Media & Technology Sector ETF was tracking 0.67% higher at $34.57 over the session.

Lumen secureds up

Lumen’s 4% senior secured notes due 2027 (Caa2/B/B-) saw a block traded Thursday at 58½ bid, up from 56 bid on Wednesday, a source said.

“It looks like they’ve moved up,” a trader said.

Lumen’s 4½% senior notes due 2029 (Caa3/CCC-/CCC-) were mostly unchanged over the afternoon at 28½ bid.

The company said Thursday the amended agreememt with subsidiaries Level 3 Financing, Inc. and Qwest Corp. has more support from creditors and debtholders than the agreement announced on Oct. 31.

Lumen reported the restated agreement is with a broadened group of creditors that now represent over $12.5 billion of outstanding debt and commitments from Lumen and its subsidiaries and over 70% of the total Lumen and Level 3 debt maturing through 2027.

The new support agreement plans transactions in the first quarter that include $1.33 billion in new-money long-term senior secured first-lien debt by Level 3, an approximately $1 billion new revolving credit facility at Lumen, the extension of maturities to mostly 2029 and beyond and the repayment of certain of Lumen’s and Qwest’s debt.

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

Lumen also said Thursday that it will release fourth-quarter results on Feb. 6.

Meanwhile, Lumen’s CDS spreads tightened 66 bps to 3,236 bps in the week ended Wednesday, according to a Moody’s Investors Service report.

In the week ended Jan. 17, Lumen’s CDS spreads had widened 180 bps.

Lumen’s CDS spreads firmed to below the 3,000 bps level in December.

Shares (NYSE: LUMN) in the Monroe, La.-based global telecommunications company jumped over 15% early in the session and traded as high as $1.71 but pulled back to close the day with a 2.2% bump at $1.38.

Lumen’s stock has a 52-week low of 78 cents and an annual high of $5.78.

Market ‘frustrating’

Overall market tone was strong in the first half of the session following the release of U.S. growth data but receded over the afternoon, sources reported.

The Nasdaq was 0.2% higher over the morning and ended the day 0.18% better.

The Commerce Department reported the U.S. gross domestic product rose 3.3% in the fourth quarter, more than expected as the growth surprised market analysts.

“It’s been a frustrating day,” a trader said. “We got the GDP data, and the market kind of rallied a little bit right out of the chute and then it kind of faded.”

Traders were busy with plenty of new junk paper following the increase in primary action this week with most new issues including on Thursday improved in the secondary market, sources said.

While the junk space didn’t swell too high with gains, some of the new stuff was “definitely better,” a trader said. “Cash inflows for the week are small.”

The iShares iBoxx High Yield Corporate Bond ETF climbed 59 cents, or 0.77%, to $77.69 on Thursday.

Distressed returns steady

S&P U.S. High Yield Corporate Distressed Bond index one-day total returns were flat midweek, unchanged from 0.01% on Tuesday and down from 0.45% on Monday.

Month-, quarter- and year-to-date total return losses narrowed to minus 2.39% on Wednesday from negative 2.41% on Tuesday and minus 2.42% at the start of the week.

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