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Uniti And Windstream Debt Downgrade: What It Means


  • Both Uniti and Windstream saw their debt ratings downgraded by Moody's.
  • This is the nail in the coffin for Uniti when it comes to traditional financing: growth is uneconomical without extreme inventiveness.
  • No clear catalyst is present in the medium term; I see no reason for share prices to appreciate. For total return investors, this doesn't look to be a buy.

I continue to follow the Windstream (WIN)/Uniti (NASDAQ:UNIT) story with interest. In general, I avoid owning equity in companies with likely near-term impairments in the capital structure that are likely to weigh on sentiment. This has consistently made me money on the short side and helped me avoid the proverbial falling knives on long positions. As examples, frequent readers have seen me avoid CBL & Associates (CBL) all the way throughout its collapse or to short companies that were likely to see new pressure on debt ratings (Molina Healthcare (MOH) as a recent example). Both Uniti and Windstream now see more pressure as both firms were downgraded deeper into junk territory on February 28th.

I've maintained that Uniti's price is not going to go anywhere as it stands and that it faces a tough battle in changing market sentiment away from how important Windstream is to long-term health. Much to the dismay of high-yield income investors, I've advocated for a dividend cut in the past to help raise capital, however incremental it might be to diversification and deleveraging efforts. When I penned that article back in September on ex-date, Uniti was essentially trading exactly where it is today. Even including the two payments, investors would have been better off in an S&P 500 index fund since then.

A long-standing comment I've made is that "cheap can often get cheaper". As the company sits today, I challenge investors to think long and hard on what they believe the catalyst is for Uniti to rise between now and 2020. Making matters worse, the company will likely exhaust the capacity on its Revolver in 2018 due to likely further spending. In doing so, will tap out on growth without an inventive approach. Leverage covenants will restrict the company to unsecured debt issuance at that point, and borrowing costs for unsecured notes will

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This article was written by

Michael Boyd profile picture
Compelling income and growth plays in the energy sector.

Author of Energy Investing Authority

Top 1% Analyst According to TipRanks

I have a decade of experience in both the investment advisory and investment banking spaces, with stints in portfolio management, residential mortgage-backed securities, derivatives, and internal audit at various firms. Today, I am a full-time investor and "independent analyst for hire" here on Seeking Alpha.

Analyst’s Disclosure: I am/we are short WIN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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