How Lumen Technologies Shares Gained 35% Last Month

Actions of Lumen Technologies (LIGHT -8.11%) up 35.2% in September 2024, according to data from S&P Global Market Intelligence. The increase followed a 66.7% gain in the previous month and a 186.4% gain in July. Lumen bucked the trend by refinancing much of its corporate debt.

Refinancing of Lumen’s debt

Part of the story here is that Lumen (formerly known as CenturyLink) was on a long losing streak before these summer spikes. Looking back since the end of June, the stock has fallen 91.9% in three years. It doesn’t take much business improvement to inspire a strong comeback from a market downturn of this caliber.

The only significant company news in September was the aforementioned refinancing. Lumen withdrew $1.03 billion of notes in its own name and another $350 million from Level 3 (which the company acquired in 2017). Debt holders accepted a repayment of less than the full amount. Discounts ranged from 2.5% to 30% for Lumen notes and held steady at 2% for Tier 3 notes.

These old debts came with annual interest rates in the 4% range. Their maturities also varied, starting in 2026 and ending in 2029.

In their place, Lumen issued $850 million in new debt, secured by the company’s assets and to be repaid in full by 2032. The annual interest rate of these debt securities is 10%.

In other words, Lumen refinanced about $1.4 billion of debt that was nearing its due dates in exchange for $850 million of new debt. The new debt balance is smaller, with a longer expiration period, but has much higher interest rates.

Lumen’s financial health

Lumen investors accepted the refinancing, sending shares up 34.2% from the announcement to its close two weeks later. However, such transactions do not look like a solid balance sheet repair. Instead, these are often signs of a company in deep financial trouble. Debt holders rarely agree to payments far below the original financing terms, and you almost have to be desperate to find new debt in an era of skyrocketing interest rates.

The stock is still down 51% in three years, even after big jumps in July, August and September. Bottom line revenues are down 30% over the same period, and free cash flows are 96% lower. Lumen is burning its financial candle at both ends, haunted by a heavy debt load and low-margin telecom network operations.

In addition, Lumen has recently signed significant fiber network agreements Microsoft and Corning. The Corning deal boosted Lumen’s long-haul network capacity, which will be needed to provide Microsoft’s Azure platform with more bandwidth.

So maybe there’s some hope for this struggling network service provider, but it’s a risky bet. I’d rather watch Lumen’s comeback effort from the sidelines.