Over the weekend I did quite a bit of reading and research on both Telephone & Data Systems (TDS) and United States Cellular (USM), which is 82% owned by TDS. TDS has revenue of about $4 billion annually, while USM has revenue of $3 billion. Note that most of the revenue shown by TDS is from their ownership of USM.
Most of the 9 issues are trading right around their $25/share liquidation preference–only 2 are trading at lofty levels. 7 of the 9 issues are now in the optional redemption–meaning they are available to be called anytime now. Recall that USM sold a $500 million baby bond (UZE) a month ago with adequate proceeds to call most of the two 7.25% issues (UZB and UZC), but given the pricing level of the issues little damage would be done to an investor if called now.
Markets have been knocking these bonds lower in the last week or two and the pricing is attractive now.
In researching the fundamentals of the two companies I was surprised how solidly the companies are performing. These 2 smaller cellular companies are NOT growth companies–but on the other hand they perform well against the giants of the industry. Net income and free cash flow has been reasonably good–although they invest giant amounts in capital improvements as you might expect in the industry they are in.
The baby bonds from TDS are rated BB by Standard and Poors and Ba2 by Moodys. The USM bonds are BB by S&P and Ba1 from Moodys. Right now this is kind of the sweet spot for where I am investing now–below investment grade, but solid.
Disclosure I own a position in the TDA 5.875% (TDA) now and am looking to add a USM position today.