Analyst says 'credit market is signaling that it believes the odds of a financial restructuring in the coming years
are very high'

Lumen Technologies Inc. is offering to conduct a debt exchange in what one analyst sees as management's attempt to "
fight it out" amid growing doubts about the telecommunications company's ability to turn around its business while
dealing with a heavy debt load.

Lumen (LUMN) said in a morning press release that Level 3 Financing, a company subsidiary, has commenced offers to
issue senior secured notes in exchange for senior unsecured notes of Lumen.

"We typically wouldn't write about a relatively smallish debt exchange offer, but the nature of Lumen's capital
structure dictates that we pay even closer attention to its debt than we have historically," SVB MoffettNathanson
analyst Nick Del Deo wrote in a note to clients. "And this morning's exchange offer struck us as fairly interesting."

Shares of Lumen, formerly known as CenturyLink, have come under heavy pressure in recent years amid challenges for the
company's legacy wireline business. The company's debt has sold off sharply as well, and stands of key interest on Wall
Street, Del Deo noted.

"Many of [Lumen's] parent company bonds now trade with yields in the high teens or greater," he wrote. "The credit
market is signaling that it believes the odds of a financial restructuring in the coming years are very high."

With the debt exchange, through which Lumen is offering to issue up to $1.1 billion in new 10.5% Level 3 notes that
have a 2030 maturity, Lumen seems "to be taking advantage of the opportunity to reshuffle some of its debt while it
still has an opportunity," Del Deo said.

Moody's analysts wrote in a February note downgrading Lumen's corporate-family rating to B2 from Ba3 that Lumen had "
significant debt maturities beginning in January 2025 that will rise to over $9 billion of debt due in 2027."

While it's unclear how the offer will play out, Del Deo's assumptions suggest that the company's "debt maturity
profile would shift from one where 2025 and2026 arguably introduce some refinancing risk to one where 2027 becomes a do-or-die year."

Lumen "seems to aspire to clear the decks as to give itself the most amount oftime possible to put its new strategy
into place and deliver results that will allow it to eventually address the 2027 maturity wall," Del Deo said. "
Management plans to fight it out."

He titled his note to clients, "We Shall Fight on the Beaches," a reference to British Prime Minister's Winston
Churchill's famous wartime speech, and even rewrote parts of the speech to reference Lumen's plight.

‘I have, myself, full confidence that if all do their duty, if nothing is neglected, and if the best arrangements are made, as they are being made, we shall prove ourselves once again able to defend our [fibrous] home, to ride out the storm of [competition, legacy revenue erosion, technology transitions, and cost pressures], and to outlive the menace of [debt vigilantes], if necessary for years, if necessary alone.’ — SVB MoffettNathanson analyst Nick Del Deo, and Winston Churchill

Lumen's stock extended its declines in Thursday's session, dropping 3.9% on the day. The shares have fallen in seven
of the past eight trading sessions; the outlying performance came Tuesday, when shares ended flat.

The stock has plunged 52% so far this year, after declining 58% over the course of 2022 in what was its worst year on
record.

Analysts have questions about Lumen's ability to reignite its business while saddled with a heavy debt load. One
concern, Morgan Stanley's Simon Flannery wrote Monday, is that Lumen "will have to make tough investment decisions to
manage free-cash flow, which may explain in part the slower pacing of fiber builds, potentially further weakening
Lumen's competitive positioning."

Del Deo chimed in Thursday that he's "skeptical of Lumen's ability to effect a radical transformation in the
performance of its business and its growth trajectory," though the debt exchange offer "makes sense as a way to improve
financial flexibility and buy time in a very challenging credit environment."

Emily Bary
MarketWatch