But the following month, Lumen announced $5bn in new business driven by AI demand for fiber capacity. Its shares are now over $6 and that unsecured debt is quoted in the 90s.

And these rallies have endured, despite the company being a popular target for short sellers.

Lumen isn’t the only telecom company that saw its fortunes change recently: Verizon’s acquisition of Frontier, and Commscope’s $2.1bn asset sale have also nudged up overall confidence in the market. Earlier this week, Bloomberg reported that the amount of distressed debt in the sector has shrunk by $18 billion.

“Positive news is definitely rewarded” one credit analyst told 9fin, although there remains reason for skepticism.

The buzz behind Lumen in particular is being fueled by hopes that expanding its fiber network will improve its competitiveness as the demand for AI grows.

“AI requires data centers – data centers require connectivity – connectivity requires fiber. As AI grows, demand for Lumen’s network grows,” Lumen’s Global Issues Director Mark Molzen told 9fin on Thursday.

The company has also been actively managing its debt stack, closing a heavily negotiated transaction support agreement last winter and a follow-on debt exchange this month that is approaching full lender participation, as 9fin has reported.

But despite the good news, the company’s underlying business struggles endure, a sell-side analyst covering the sector told 9fin, characterizing the moves as a bid to raise cash amid deteriorating liquidity and revenue: As of Q2 24, it had $19.3bn in long-term debt and finance lease obligations outstanding up against an adjusted EBITDA down 22% year-over-year at $875m, and a business segment revenue decline of 11% from the previous year to $2.6bn.

The analyst also raised skepticism about the impact of the fiber deal, which will be carried out over three to four years.

“These are big numbers spread over a long period,” he said.

Nevertheless, the deal provides a nice cash infusion upfront and positions Lumen to be competitive in the long term thanks to AI’s reliance on fiber, another credit analyst told 9fin.

DISH Network is another company that has drawn attention in recent weeks thanks to reports that AT&T is in late stage talks to consummate a merger with its DirecTV business.

Quotes on all five of the company’s previously distressed tranches –  issued at its DBS Corp unit – have improved since 1 July, with three tranches – its 7.75% senior secured notes due 2026, 5.75% senior secured notes due 2028, and 7.75% senior notes due 2026 – moving up into the 80s. Quotes on the DBS unit’s remaining distressed notes – the 5.125% senior notes due June 2029 and the 7.375% senior notes due July 2028 – have shot up 28 and 36 cents on the dollar respectively.

Source: 9fin

9fin sources have also said the company is hearing proposals from third parties for funding backed by spectrum licenses to help support the merger.

If carried out, the merger would create one of the largest pay TV distributors in the US. But it is not without challenges: Notably, the DISH DBS subsidiary still has a distressed capital structure despite gains, a fact which could complicate any deal, a sell-side analyst told 9fin.

The company did not respond to requests for comment.

And the company still has a sizable maturity coming up: its $1.99bn DISH DBS senior notes are due in November 2024, and it recently disclosed ending talks with a large crossholder group, advised by Milbank and Lazard, without reaching any new money deal that would address the debt.

There is also pending litigation by lenders targeting a number of collateral transfers, including that of spectrum assets it stripped from existing lenders to back new bonds in a hotly contested exchange offer in January, although there were reports that it has been in talks to settle the dispute.

Like DISH, quotes on Commscope bonds have also jumped back into non-distressed territory this summer, with as large as 104% gains as of 26 September from 1 July 2024.

Source: 9fin

The rally follows the announcement of a $2.1bn asset sale, which has given the company a cash infusion as it stares down six tranches of debt coming due between June 2025 and September 2029.

The company’s Q2 24 earnings, while mixed, saw positive performance in two of its key business segments that helped offset other shortfalls, with sales in its Connectivity and Cable Solutions and Outdoor Wireless Networks segments improving 4.5% and 12% YoY respectively. Non-GAAP adjusted EBITDA increased 19.5% to $302.1m YoY the same quarter.

Commscope did not respond to requests for comments.

Whether this news will change the outcome of a potential LME deal, as 9fin has previously reported, remains uncertain. But the positive developments mean some of its debt could be refinanced regular way, rather than through an LME, a credit analyst told 9fin, although sources say any plans to do so are at an impasse.

Meanwhile, Verizon’s recent acquisition of Frontier Communications gave the company an additional 2.2 million fiber subscribers and expanded its fiber reach to 25 million premises, the company said. The deal was a breath of fresh air several years after Frontier went through a Chapter 11 Bankruptcy in 2020 that handed control to a group of bondholders.

It also follows other fiber-driven acquisitions, such as T-Mobile and KKR’s joint acquisition of Metronet’s fiber assets.

The deals have ignited broad hopes for M&A activity across fiber centric telecommunications companies, a sell-side analyst told 9fin, although whether these hopes will translate into reality is an open question.

Verizon and Frontier did not respond to 9fin’s inquiries.

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