Telecom U.S Cellular to Sell Baby Bonds

Midwest telecom company U.S. Cellular (USM) has announced that they will be selling some Senior Notes.

The notes will have an early redemption period starting in 2025.

The permanent ticker will be UZD once they begin trading on the NYSE in a few days–to a week or so.

The company has 3 other issues outstanding —they can be seen here.

The company has not indicated a redemption of outstanding issues definitively, but ‘use of proceeds’ may be for debt repayment. Investors should use caution as they have a 7.25% and 6.95% currently redeemable.

The preliminary prospectus can be read here.

16 thoughts on “Telecom U.S Cellular to Sell Baby Bonds”

  1. Anyone knows why the 6.25% UZD is trading at such price compared to 6.95% UZA? I understand the call risk of UZA, but find it amazing to see UZD trading at above 26, when UZA is at 25.42? Just want to see if I am missing something….

    1. Walden – In this day and age where so many currently callable preferreds are actually getting called from the proceeds of new issues, do you think it’s merely coincidental that UZA is trading at a price that is almost exactly equivalent to what one would get if they were called immediately on 30 day’s notice? When the Use Of Proceeds section of UZD includes retirement of debt as one of its possible uses, that’s the reason why currently callable UZA is trading where it is. There’s a case to be made for UZA being cheap when compared to the other currently callable high coupon USM issue, UZB, which is trading thru what you would get if USM immediately announced UZB’s call, but still, that’s why UZA is trading relatively low… The phenomenon is called being “tied to par” because of an issue’s current callability, despite its higher than the going rate current yield. Buying into the strategy seems to be an antiquated idea in this day that’s dominated by the “lower for longer” philosophy on interest rates, but the strategy does provide for greater price stability on a purchase should interest rates begin to rise. Ironically, the downside of the strategy is the same as its positive aspect in that it provides greater price stability on a purchase at a time when practically everything you could buy WITH strong call protection these days immediately soars to a hefty premium. You’d only want to buy UZA were you willing to accept its minuscule YTC yield should a call be announced ASAP because that happening has a higher than normal likelihood of being what actually happens.

      1. Thanks for getting back. I am actually betting that UZA would last a bit longer. If I am the CFO and holding USD500m I would retire UZB first, unless he got a kind of “FIFO” way of thinking. My primary position is with TDE, which still got some buffer from TDJ. However, UZA trading below UZB and UZC is still a bit weird, given one dividend payment is coming up soon in Sep2020 for UZA.

    1. So could buy the older UCZ with 7.25% coupon would be better?

      UCZ is currently $25.60 and not callable for upto 2 more of the dividends till 12/1/2020 for better performance unless you can buy the UZD below $25?

    2. Jerry, thanks for the comment this evening. They are going with $500M and it will be interesting to see what they do with the proceeds. Much appreciated.

      FYI, notes are rated Ba1/BB/BB+ by Moody’s, S&P and Fitch. Basically, a step or two below investment grade.

  2. Thanks for the heads-up Tim. Currently, I own both UZA with a 6.95% coupon and UZB with a 7.25% coupon and they both callable and have a negative YTC, so I was able to dump both issues this morning and save myself a few dollars. UZC is not callable until December 1st, 2020 – but who knows if they will issue bonds at a much lower coupon rate and then payoff UZC once December 1st rolls around. The coupon rate on UZC is 7.25% as well. If they can get a rate of 6.75% or lower, it would certainly make sense to take out UZC too. In this interest rate environment, it will be interesting to what kind of rate they are able to get.

    It will be sad to see my UZA shares go. I bought and traded some of those over the years, but still think I had some of the original shares bought a few weeks after they were issued back in 2011.

    1. US Cellular bond issue history is issuing amounts of 275 million for UZB to 300 million for UZA and UZC. If US Cellular acts now in a similar manner, it appears that a 300 million dollar issue would result in the redemption of UZB.
      Unsure that US Cellular would redeem UZA at 6.95 when they have UZC at 7.25 having a call date December 2020. Hancock Whitney low investment grade issued recently at 6.25% for a bank established in 1870. Likely 6.50 percent or 6.75 percent pricing for a 300 million dollar issue will result in UZB called but not likely the UZA at this time.

    2. If the price range for new issue is 6.50-6.75 it just doesn’t feel to me as though repayment of indebtedness will be as high a priority as we might suspect as baby bond people. They list other possible uses as well and wrap it all under the cover of “general corporate purposes,” so it feels to me as though the savings to be had for retirement of even 7.25% with 6.50% is probably relative low on the totem pole of capital usages after taking into account issuance costs vs other possible uses. Yeah, I know, “famous last words,” but if UZB were to fall to 25.40 or so in anticipation of it being called, I might take the other side of that bet.

      1. 2WR, overall anything is possible with these bonds as the company still has a large amount of capital expenditures planned for the next fiscal year. Being a little conservative, I did sell my shares this morning as the YTC was negative on both the issues I hold and was concerned the issues could be called. However, I’ve been wrong many times before!

      2. 2WR, We are friends so I can tease you… I been telling you the action and gains are on the long side now, not the short side. Dont make me bring my paddle with me to get you to agree, ha.
        A relative marker here is the 6.7% US Cellular 2033 senior unsecured currently trading at $130 or a 3.77%… Yep, sign me up for a modest helping of this issue when it comes to market. A very smallish subregional player scattered around USA. Will always be the little train that just quite couldnt do it, as scale matters here..But I see a continued muddling along. Not in my widows and orphans account but it will be bought if close to par. I own the parent debt TDE also, so I will not go crazy here.

        1. ha ha, yeah I know…. and of course you’re right but still ya gots to stay in your own comfort zone I suppose… but just to make you happy, I’ll confess I, too own TDE so baby steps.

          1. 2WR, You know the only reason why I tease you is because I am of full confidence that you have a sound disciplined strategy for yourself. If I thought for a moment my teasing would unduly influence you, I would never say it!

            1. Grid, I have been in and out TDS preferreds, mainly TDE and USM for decades. Once upon a time, a double rated IG by Moody/SP. Then double downgraded by both. It managed well and this quarter, they obviously had surprising more top and bottomline. I currently own TDE, modest amount. Always sold USM preferreds foolishly believing that the child could have more problem with competition from the huge well known names. Then a communication stock, CTL continued to generate “free cash” retiring shorter higher interest loans and refinancing at lower rate pushing out the due date. This time, it seems the rally continues (perhaps in concert with the general positive market sentiment). LOL.

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