It's anyone's guesstimate how management will allocate the capital from the transactions (see links below). Why? Because they are not saying, however they gave an important target to shoot for noting they will be leverage neutral over the next few years. An overview of the transactions with Stonepeak and Apollo which will net approximately $8.5 billion in cash before any cash taxes if NOL's fall short can be found at:
The question is what were they thinking when they made the leverage neutral comment at the conference call:
Second, I expect we will manage our balance sheet to remain more or less leverage-neutral over the next few years as we accelerate investment into our growth initiatives.
Here is one possibility illustrated below that keeps the leverage ratio above their target ratio. Getting here required an adjustment to the growth profile, a major capex program and an expansion of the buy back program (which just uses up more of the cash). A major portion of debt is closed the quarter after the Apollo transaction which is 4Q22 and capex peaks in 2023. This scenario starts to bear fruit in 2024. The dividend is temporarily unsustainable (matching their rhetoric) but could be sustained at a lower lever (I used a 50% cut) with cash left over from the transactions unless they increase their buyback program and/or capex more than the projections shown below.
Again from the conference call:
I do realize that will put pressure on our dividend after we close these transactions and the further we get into our investment program.
Will they reverse course on the high leverage ratio, a possibility shown on the main LUMN page or something in between these two scenarios? Only management knows. What we do know is there are possibilities for a wide range for FCF dependent on what they actually have planned for the proceeds. Worst case eliminating the dividend to possibly maintaining a portion of it.
Comentários