Qwest Corporation Issues Another Baby Bond

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In what has been an annual foray into the debt markets Qwest Corporation (a wholly owned subsidiary of CenturyLink) has sold another baby bond issue.  With this new issuance the company will have 9 baby bond issues outstanding.  The company will realize approximately $635,000,000 from this offering assuming the full exercise of the overallotment and after deducting underwriting expenses.  You can compare the various issues outstanding on our baby bond page here.

The new issue comes with a coupon of 6.75% and a maturity date in 2057.   The ticker symbol has not been announced and since it is a baby bond issue it is unlikely that the issue will trade on the OTC Grey Market prior to big board trading.  Investors will have to check with their brokerage firm for the start of trading, although we would expect trading to being within a week.

The company has stated that they will use the proceeds from this offering to redeem some notes that are maturing.  With any excess funds available after the note repayment they will call for early redemption some of the 2051 7.5% baby bonds (NYSE:CTW).  As noted above Qwest currently has 8 baby bond issues outstanding  (9 counting the new issue) with coupons ranging from a low of 6.125% to 7.5%.  Of the issues 8 outstanding 2 are currently available to be called early. The 7.5% issue (NYSE:CTW) became callable on 9/15/2016 and the 7% issue (NYSE:CTX) became callable on 4/1/2017.


All Qwest baby bonds are rated BBB- by Standard and Poor’s and Ba1 by Moodys so these are relatively high quality debt instruments.  

Being debt the interest paid by these notes will not qualify for the preferential tax treatment which is preserved for dividends.

Details of the issue can be found here.

A quick review of CenturyLink financials finds that the provider of land lines and broadband services has remained nicely profitable through the last 5 years, although total revenues have slowly drifted lower.  We would classify CTL as a mature company that is battling, so far successfully, to remain relevant in a world awash with cell phones and constant reductions in landline phones.  We note that the company has 58 data centers which presents a future potential opportunity for a profitable spin off.  Cincinnati Bell did a spun off their data centers a couple of years ago and Cyrus One (NYSE:CONE)  has turned into a highly successful REIT.

Investors with an interest in these baby bonds should be aware that baby bonds with long dated maturities will move lower if we get sharply higher interest rates.  The Qwest baby bonds have maturities ranging from 2051 to 2057.  On the other hand the returns on these issues are reasonably good and if you believe interest rates might rise slowly they are probably worth consideration.

To get more information on preferred stocks and exchange traded debt (baby bonds), screen them, set up your own portfolio and receive email alerts, go to www.preferred-stock.com now.


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Tim McPartland

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Tim McPartland
Tim McPartland is a private investor with over 45 years of investing experience. His analysis, research and writing is devoted to the hunt for income producing securities of all types, but in particular specializing in preferred stocks, exchange traded debt and Master Limited Partnerships.
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