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Windstream Corporation (WIN) intends to refinance $1 billion of its debt, maturing 2015. Earlier this week, the company also announced refinancing for its $1.1 billion term loan due in 2013. Given the company’s balance sheet position, which already remains highly leveraged due to new debt issuances, might pose certain risks despite its  significance in maintaining liquidity. 

Windstream seeks a total of $1.345 billion to refinance its due maturities in 2013 and 2015. The company expects to enter into term loans for repaying the existing debt by end of this month subject to market conditions.

We believe that the company’s increasing debt burden stems from the on-going expansion plans. Acquisitions to expand its coverage markets and subscriber count are vital for its survival in an industry, which is undergoing consolidation. All these activities have strained the balance sheet, as the company is predominantly funding most of them through debt. Windstream had approximately $7.8 billion in long-term debt at the end of September 30, 2012.            

However, windstream is making efforts to improve its balance sheet profile by minimizing its debt position and enhancing the liquidity profile. The company generated free cash flow of $669 million as of September 30, 2012. Further, with several refinancing activities taking place and the ongoing deleveraging plans, the company expects to save interest of more than $70 million in the coming months.

We are also impressed with the company’s continued commitment to maximize value for investors in the form of healthy dividend payouts. The company returned $464.6 million and $509.6 million to its shareholders in 2010 and 2011, respectively, through dividend payments. As of September 30, 2012, the company made a dividend payout of $441 million.

However, we remain on the sidelines given competitive pressure from peers like Frontier Communications (FTR) and continued access-line erosion, which could pose significant threat to the company.

Windstream has a Zacks Rank #4 (Sell). For the long term, we have our Neutral recommendation on the stock.


 
FRONTIER COMMUN (FTR): Free Stock Analysis Report
 
WINDSTREAM CORP (WIN): Free Stock Analysis Report
 
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Zacks Investment Research
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Zacks Investment Research

Zacks Investment Research Inc. is an equity research firm. It offers research through quantitative and qualitative analysis. The firm caters to individual and institutional clients. Zacks Investment Research Inc. was founded in 1978 and is based in Chicago, Illinois.