TDS announces new $375 million unsecured debt financing

Rhea-AI Summary

Telephone and Data Systems, Inc. (TDS) secured a $375 million unsecured debt financing with Oaktree Capital Management, L.P. The funds will be used for TDS Telecom's fiber build program to reach 1.2 million marketable fiber service addresses. The transaction maintains TDS' low-cost, long-dated capital structure with a slight increase in cost of debt and preferred equity. The 5-year loan offers flexibility for early repayment and interest at SOFR +7%.

Insights

Financial Analyst

Telephone and Data Systems, Inc.'s decision to secure a $375 million unsecured debt financing agreement with Oaktree Capital Management is a strategic move to bolster its fiber build program. While the influx of capital will likely enhance the company's ability to expand broadband connectivity, investors should consider the nuances of this financing. The incremental weighted average cost of debt increase by 30 basis points to 6.8% is modest and could be justified by the potential returns from the investment in fiber expansion. The floating rate of SOFR +7% indicates a reliance on variable interest rates which, while potentially cost-effective in a decreasing rate environment, can also pose a risk of increased debt costs if rates climb. The option to repay the loan at any time with call protections offers TDS flexibility, but the true cost of this financing will depend on how effectively the funds are used to generate returns that exceed the cost of capital.

Telecommunications Market Analyst

From a market perspective, TDS's initiative to invest in fiber-optic infrastructure could significantly position the company in a competitive broadband market. The expansion to 1.2 million marketable fiber service addresses aligns with the growing consumer demand for high-speed internet, particularly in underserved areas. This demand for quality broadband connectivity is a critical driver for customer acquisition and revenue growth in the telecom sector. However, the success of this investment will hinge on execution and uptake rates in the newly launched communities. If the infrastructure deployment is efficient and customer adoption is high, TDS could see a favorable impact on its market share and financial performance. Conversely, any delays or lower than expected penetration can dampen the envisioned benefits and add to the financial burden of the new debt.

Debt Markets Expert

Analyzing the structure of the unsecured loan, TDS has shown prudence by structuring the transaction under existing debt agreements, which might indicate a strategic approach to capital management. The ability to draw the remaining $75 million over 18 months provides operational flexibility, yet such arrangements might come with covenants that could constrain the company's financial or operational flexibility. The investment community will need to monitor TDS's leverage and interest coverage ratios closely as these will be impacted by the new debt. Considering the broader debt market, a SOFR +7% rate for a telecom company suggests a premium above the risk-free rate, a reflection of the market's view on the risk profile of the company and the sector. Investors should balance this cost of capital against the potential growth enabled by the investment in fiber infrastructure.

CHICAGO, May 3, 2024 /PRNewswire/ -- Telephone and Data Systems, Inc. (NYSE: "TDS") announced today the closing of a $375 million unsecured debt financing with funds managed by Oaktree Capital Management, L.P. ("Oaktree"). The proceeds will be used for general corporate purposes, including the advancement of TDS Telecom's fiber build program.

"Now that all of our fiber expansion communities have been initially launched, TDS Telecom is continuing to make progress towards its long-term goal of 1.2 million marketable fiber service addresses," said Vicki L. Villacrez, TDS Executive Vice President and CFO. "This transaction will provide TDS with additional access to capital to support our fiber program which includes investing in communities throughout the US with quality broadband connectivity.

"Importantly, we structured this transaction to be permissible under our existing debt agreements which allows us to preserve our predominantly low-cost, long-dated capital structure. TDS' weighted average cost of debt and preferred equity increases 30 basis points to approximately 6.8% with this borrowing but still remains attractive in today's high interest rate environment."

Milwood Hobbs, Jr., Head of Sourcing & Origination at Oaktree, said, "Oaktree is excited to partner with TDS to support its critical fiber network investments. This capital will help enable TDS to provide reliable high speed broadband capacity to new and often underserved areas. We believe this infrastructure is vital to all communities."

The transaction is structured as a 5-year loan with the option to be repaid at any time subject to applicable call protections. TDS borrowed $300.0 million, less original issue discount, at closing, and the remaining $75.0 million will be available to draw for 18 months subject to certain conditions precedent. Borrowings will bear interest at a floating rate of SOFR +7%.

Wells Fargo and Citi served as financial advisors to TDS on the transaction.

About TDS
Telephone and Data Systems, Inc. (TDS), a Fortune 1000^® company, provides wireless; broadband, video and voice; and hosted and managed services to approximately 6 million connections nationwide through its businesses, UScellular, TDS Telecom and OneNeck IT Solutions. Founded in 1969 and headquartered in Chicago, TDS employed 8,600 people as of March 31, 2024.

About Oaktree
Oaktree is a leader among global investment managers specializing in alternative investments, with $192 billion in assets under management as of March 31, 2024. The firm emphasizes an opportunistic, value-oriented and risk-controlled approach to investments in credit, private equity, real assets and listed equities. The firm has over 1,200 employees and offices in 23 cities worldwide. For additional information, please visit Oaktree's website at http://www.oaktreecapital.com/.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: All information set forth in this news release, except historical and factual information, represents forward-looking statements. This includes all statements about the company's plans, beliefs, estimates, and expectations. These statements are based on current estimates, projections, and assumptions, which involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Important factors that may affect these forward-looking statements include, but are not limited to: whether any strategic alternatives for UScellular will be successfully identified or completed; whether any such strategic alternative will result in additional value for TDS or its shareholders and whether the process will have an adverse impact on TDS' businesses; intense competition; the ability to attract people of outstanding talent throughout all levels of the organization; TDS' smaller scale relative to larger competitors; changes in demand, consumer preferences and perceptions, price competition, or churn rates; advances in technology; impacts of costs, integration problems or other factors associated with acquisitions, divestitures or exchanges of properties and/or expansion of TDS' businesses; the ability of the company to successfully construct and manage its networks; difficulties involving third parties with which TDS does business; uncertainties in TDS' future cash flows and liquidity and access to the capital markets; the ability to make payments on TDS and UScellular indebtedness or comply with the terms of debt covenants; the effect on TDS' business if the collateral securing its secured term loan is foreclosed upon; conditions in the U.S. telecommunications industry; the value of assets and investments; the state and federal regulatory environment; pending and future litigation; cyber-attacks or other breaches of network or information technology security; control by the TDS Voting Trust; disruption in credit or other financial markets; deterioration of U.S. or global economic conditions; and the impact, duration and severity of public health emergencies. Investors are encouraged to consider these and other risks and uncertainties that are more fully described under "Risk Factors" in the most recent filing of TDS' Form 10-K.

For more information about TDS and its subsidiaries, visit:
TDS: www.tdsinc.com
UScellular: www.uscellular.com
TDS Telecom: www.tdstelecom.com
OneNeck IT Solutions: www.oneneck.com 

View original content:https://www.prnewswire.com/news-releases/tds-announces-new-375-million-unsecured-debt-financing-302135349.html

SOURCE Telephone and Data Systems, Inc.

FAQ

What was the purpose of the $375 million unsecured debt financing announced by TDS?

The funds will be used for general corporate purposes, including the advancement of TDS Telecom's fiber build program.

Who provided the funds for the debt financing?

The debt financing was provided by funds managed by Oaktree Capital Management, L.P.

What is the goal of TDS Telecom's fiber build program?

TDS Telecom aims to reach 1.2 million marketable fiber service addresses.

What is the interest rate on the borrowings?

Borrowings will bear interest at a floating rate of SOFR +7%.

Which financial institutions served as advisors to TDS on the transaction?

Wells Fargo and Citi served as financial advisors to TDS on the debt financing transaction.