I have posted several times that I applaud the timing of the (past) dividend cut and CenturyLink's decision to work to improve its credit profile.
Read the implications of the below article and you will better understand the coming problem for many corporate entities with credit rating barely above BBB.
Any slowdown in the economy (which is inevitable given the juicing we have experienced over the past several years by the Fed trying to keep interest rates accommodative will create massive amounts of trouble for various companies which have loaded up on low investment grade debt. Trying to rollover barely investment quality debt in an environment of RISING interest rates is a massive undertaking....which tends to ERODE cash flows....thus imperiling the overall credit rating of the company overall. If the credit rating is downgraded to below investment grade...a step down in value occurs...further compounding the rollover problem.
Despite CeturyLink's proactive stance (cutting the dividend last year)...some investors who understand this cliff that the MARKET (not necessarily CTL specifically) is facing...are betting that many of the most highly leveraged issuers of low quality BBB debt is going to encounter trouble due to the bulge mentioned in the above article.
It's not a matter of IF it happens....but WHEN. Thus I continue to applaud all efforts by CTL to push out its maturities and improve its credit rating...even if it hurts the stock in the near-term.
VG
