Uniti Dividend Is Likely To Be Suspended

Introduction
Uniti's (NYSE: UNIT) share price has fallen by over 50% in the last ten days following an adverse legal ruling that might trigger or accelerate a default of its largest customer, Windstream (NYSE: WIN). There are speculations about the fairness of the judicial decision, the safety of master lease agreement between Uniti and Windstream and the risk or the quantum of a dividend cut at UNIT.
In addition to the legal uncertainty, a key issue is the falling revenue base of the sector whether it is at CenturyLink (NYSE: CTL), Frontier (NYSE: FTR) or Windstream. In a falling revenue (i.e., deflationary) environment, debt can no longer be rolled over but needs to be repaid as the borrowing base is declining.
You often hear how deflation can be awful for financial investors. Deflation is happening in Uniti's sector: the old capital structure is no longer sustainable, and shareholders are last in line. This is the reason why Windstream and Frontier Communications' shareholders have been all but wiped out, why Windstream debt is on the lowest junk rating, why Windstream just filed for Chapter 11 and why Uniti's equity may also fall further.
We need to understand the rationale of Windstream and Uniti's stakeholders to assess the real value of Uniti's shares. I think the downside risk is substantial and that a suspension of the dividend is more likely than a reduction.
Uniti and Windstream
In this article, I assume the reader is familiar with the... Read more

Older articles featuring FTR: