S&P Lifts Lumen Debt Rating to 'B' After AT&T Asset Sale

Key Rating Upgrade

S&P Global Ratings has upgraded Lumen Technologies Inc.'s senior unsecured debt rating to 'B' from 'CCC'. The decision follows the company's strategic sale of its fiber-to-the-home broadband business to AT&T Inc.

Transaction Overview

The deal, valued at $5.75 billion, involved Lumen selling a substantial portion of its Mass Market segment. The company plans to use $4.8 billion of the proceeds to retire super-priority debt, a move expected to reduce its annual interest expense by $300 million. This brings Lumen's pro forma leverage ratio, adjusted by S&P, down to the high-4x area from 5.9x.

Economic and Market Impact

S&P also upgraded the recovery rating on Lumen's $1.35 billion senior unsecured notes to '2' from '6', indicating a substantial recovery expectation of 70%-90% in case of default. However, the agency maintained its 'B-' issuer credit rating, citing concerns that leverage may increase again due to future revenue declines and business transition costs.

Summary Outlook

While the debt repayment significantly improves recovery prospects for unsecured noteholders, S&P's outlook remains cautious. The market will closely monitor Lumen's ability to manage its business transition and navigate potential revenue challenges.

FAQ

Q: Why was Lumen's senior unsecured debt rating upgraded?
A: The rating was raised following Lumen's $5.75 billion asset sale, with proceeds used to significantly reduce debt and lower interest expenses.

Q: Did Lumen's overall company credit rating improve?
A: No, S&P maintained the 'B-' issuer credit rating due to concerns about potential future revenue pressure and rising leverage during its business transition.

Source: Investing.com