Packer16 Posted May 23, 2013 Share Posted May 23, 2013 The ALSK sub bonds have recently rallied to the high 70s (yielding in the high 12%s YTM) and and line of credit is above par. ALSK is one of two telecom providers in Alaska. They currently have alot of debt ($440 m) but cash to payoff $190 million of the debt will be paid by AWN to delever over the next 4 years. Based upon the current level of EBITDA, AWN is projected to generate $120 m in EBITDA plus and additional $30 m of synergies. AWN is forecast to have $40 m in cap-ex and thus a FCF of $110 m. ALSK's preferred return is $48 m per year (so there is over 2x coverage for this payment). In stressed scenario where Verizon takes 33% of AWN's business, AWN will still generate $70 m ($120m * 2/3 + $30m - $40m) with a 1.5x coverage ratio. In looking at ALSK's latest quaterly filings it appears the broadband offerings for consumers and business are more the offsetting traditional land line losses. This is in contrast to most other RLECs and ILECs. ALSK and GNCMA appear to be the only growing firms in this space with exceptions of T and VZ. They appear to be growing more in line cable cos. Based upon the $190 million debt paydown, ALSK is trading at only 3.3x EBITDA. A discount to the other RLECs. Some risks are that AWN is not approved. In which case ALSK would have some liquidity issues. The 2 ways to play this is via the common or the sub debt. Since the sub debt is 144A, only qualified investors can purchase. The common stock is interesting and wold be a definite buy if AWN is approved. AWN is expected to be approved in Q2. Packer Link to comment Share on other sites More sharing options...
mcliu Posted May 23, 2013 Share Posted May 23, 2013 Are there more details on the AWN transaction? Are they getting proceeds from the transaction, and if so, are they using it to pay-off debt? What's the pro-forma EV and EBITDA of ALSK and AWN? Is the AWN transaction not monopolistic, or are there a ton of other wireless competitors in the state? Link to comment Share on other sites More sharing options...
Packer16 Posted May 23, 2013 Author Share Posted May 23, 2013 On the GNCMA website there is a nice summary. ALSK stated they are planning in using a majority of the upfront $100 m to pay down debt. I have not tried to figure out the EV of AWN but just flowed through the proportional shares (67% to GNCMA and 33% to ALSK) of EBITDA to each firm. AWN is a wholesale network and both GNCMA and ALSK will continue to market their services independently. The other 2 wireless carriers in Alaska are AT&T and so the arrive VZ. Packer Link to comment Share on other sites More sharing options...
mcliu Posted May 24, 2013 Share Posted May 24, 2013 Thanks Packer. I haven't had time to look into this further, will try to do it this weekend, but just at first glance, I can't seem to get there with the math. Would you be able to highlight how you get to the 3.3x EV/EBITDA? I took a quick glance at the 10-Q and it seems like there's >550M of debt + 85M in equity. If you take out $100M, you're still at ~$530M in EV. 3.3x implied $160M in EBITDA. How do you bridge the $125M TTM EBITDA to the ~$160M post-transaction pro-forma? Link to comment Share on other sites More sharing options...
Packer16 Posted May 24, 2013 Author Share Posted May 24, 2013 I also subtract the $190m if preferred distributions ALSK will get over the next four years and add together the non-wireless EBITDA to 33% of the residual EBITDA ALSK will receive from AWN after the preferred distribution period. Packer Link to comment Share on other sites More sharing options...
sethatk Posted June 4, 2013 Share Posted June 4, 2013 Write up on Seeking Alpha, Harry Long thinks it is a takeover target. http://seekingalpha.com/article/1476091-alaska-communications-is-an-excellent-takeover-target Link to comment Share on other sites More sharing options...
Phaceliacapital Posted June 4, 2013 Share Posted June 4, 2013 I like the idea, just pulled it through BB: EBITDA @ 30%, FCF at 33-45 year basis, 16 and 10 in last quarters (of which 90% was used to delever), insiders bought at ranges between 1.66 and 1.78 in March. The statements of course read as a classic communications company. I liked the motivated seller point of view. Link to comment Share on other sites More sharing options...
Phaceliacapital Posted June 4, 2013 Share Posted June 4, 2013 DrHawc Comments (30) So ALSK gets a big boost in earnings and chooses to muscle out the shareholder! the first cut of 70% was not enough, they have to have it all. So this time they took it all leaving shareholders with nothing but a 70% loss in value and ZERO income. What a way to run a company. I think they purposely sinking the company so someone will come in and scoop it up for nothing....someone sould surely take out the management and board; where is the 1% when we need them? 2 Nov 2012, 12:13 PMReply! Report AbuseLike0 Old seekingalpha comment. What bothers me is that they don't have a more recent company presentation. Anyone checked the latest conference call? Link to comment Share on other sites More sharing options...
tombgrt Posted June 5, 2013 Share Posted June 5, 2013 http://www.newsminer.com/blogs/staff_blogs/verizon-s-entry-signals-new-competitive-era-in-alaska-wireless/article_0d8acb06-cca4-11e2-aad2-001a4bcf6878.html Link to comment Share on other sites More sharing options...
Packer16 Posted June 5, 2013 Author Share Posted June 5, 2013 Thanks for the link. It will be interesting to see if Verizon can meet folks expectations with a small number of towers in Fairbanks. It appears they have a reputation of high prices so it doesn't sound like a price war will break out. Packer Link to comment Share on other sites More sharing options...
tombgrt Posted June 5, 2013 Share Posted June 5, 2013 Yes, I am confident V wont have to large an impact to make this stock suddenly expensive. Biggest short time risk should be the pending merger. What is the likelihood of it failing in your opinion Packer? Link to comment Share on other sites More sharing options...
Cunninghamew Posted June 5, 2013 Share Posted June 5, 2013 I was doing some quick back of the napkin math on this and assuming they pay down $290 mm of debt ($100 mm payment + $190 of upfront cash flow from merged entity) I get an enterprise value of approx $307 mm (Mkt cap: $81mm + net debt of $515 - $290mm in payments). The presentations I have read say that AVN should do about $120mm in EBITDA, which ALSK will have a 33% stake in so their proportionate EBITDA is $39.6mm. <-- my understanding is this is only from wireless Does anyone have a feel for how much EBITDA the non-wireless assets will contribute? Link to comment Share on other sites More sharing options...
Cunninghamew Posted June 5, 2013 Share Posted June 5, 2013 Revenue makeup in 2012. Wireless 38% Business & Wholesale: 29% CETC: 22% Consumer 11% All of this generated EBTIDA of $112mm, but I cant find anything in their filing that lets me back out EBITDA at the division level. I am also assuming (probably incorrectly) that the AVN transaction is only related to the assets in their wireless division, so they will still have revenues from the three others Link to comment Share on other sites More sharing options...
Cunninghamew Posted June 5, 2013 Share Posted June 5, 2013 Nevermind I found an old presentation that breaks out EBITDA by wireless vs wireline... In 2011 Wireline did $57mm and Wireless did $68mm Wireline is a shrinking biz, but if I assume they can do $45mm (that seemed like a random lowball #) and AVN does $120 (they get 33%) you get approx $85mm in EBITDA going forward... 3.6x EV/EBITDA with debt paydown Link to comment Share on other sites More sharing options...
Packer16 Posted June 5, 2013 Author Share Posted June 5, 2013 The wireline business is actually growing (see last Q) and will increase based upon the increased backhaul for VZs new services. Packer Link to comment Share on other sites More sharing options...
Phaceliacapital Posted June 5, 2013 Share Posted June 5, 2013 From SA: Excellent article. Would just add the following caveats as background. Two good reasons Wall Street and mutual funds dislike ALSK are: 1. Massive failure in a bull market (in past two years, share price has plummeted from $9 to recent $1.55 low) 2. Untrustworthy and inept management (besides above failure they missed estimates for 3 consecutive quarters prior to Q1 2013 and eliminated dividend shortly after saying they had no plans to do so) ALSK is an unlikely take-over candidate because: 1. It is a union shop with high unfunded pension liabilities (AWN will be managed, staffed & operated by GCI partner which is non-union) 2. ALSK was effectively forced into eliminating its dividend and negotiating the AWN agreement to avoid bankruptcy because it has a boatload of long-term debt and couldn't borrow any more money 3. The Alaska cellular market is micro-sized and already split three ways between AT&T, Verizon, and AWN (if approved by regulators). 4. Out of the top 20 towns in Alaska on 2010 census, only Anchorage (291,826), Fairbanks (31,535), and Juneau (31,275) had a population over 10,000 people. 5. There are costly termination provisions in the AWN agreement if either partner backs out. This would likely make it necessary for an acquirer to purchase both GCI and ALSK in a hostile take-over. With the above caveats, I'm still mildly bullish on ALSK over the short-term because of: 1. The special one-time $100M payment, which lenders insisted MUST be applied to bring down ALSK debt, when (if) AWN agreement closes 2. Preferential payments to ALSK over first 4 years of agreement 3. Relatively heavy data usage by Alaska wireless subscribers. This occurs because: a. Ultra-low population density and huge area precludes cost effective cable service (e.g., Comcast) in most areas. b. Residential satellite TV (DirecTV, DISH) is not an option due to the far northern latitude and frequent weather-related outages. c. Macro trends such as internet delivery of on-demand TV & movies (Hulu, NetFlix), free internet/VOIP long distance calling, and multi-player gaming are particularly appealing in Alaska. Biggest reservation to short-term speculation in ALSK is concern that US market has topped technically and is due for a massive correction. Particularly weigh the geopolitical risks of Israel attacking Iranian nuclear facilities in the next few months or the US getting more openly involved in the Syrian crisis. Link to comment Share on other sites More sharing options...
Packer16 Posted June 5, 2013 Author Share Posted June 5, 2013 I am not a lawyer but ALSK and GNCMA appear to have structured the JV so each will still market their service seperately so there will be 4 competitors in the consumer market. I think the idea may work if they can sell some of the cost savings will be reflected in more services for the same price or a lower price for the same services over time. This out of my wheelhouse but at least the argument makes sense. Packer Link to comment Share on other sites More sharing options...
tombgrt Posted June 17, 2013 Share Posted June 17, 2013 I was doing some quick back of the napkin math on this and assuming they pay down $290 mm of debt ($100 mm payment + $190 of upfront cash flow from merged entity) I get an enterprise value of approx $307 mm (Mkt cap: $81mm + net debt of $515 - $290mm in payments). The presentations I have read say that AVN should do about $120mm in EBITDA, which ALSK will have a 33% stake in so their proportionate EBITDA is $39.6mm. <-- my understanding is this is only from wireless Does anyone have a feel for how much EBITDA the non-wireless assets will contribute? You have to include the synergies that would occur. $150m in EBITDA or $110m in FCF for AWN would be te correct number from year 2 and beyond. Also don't forget that those proceeds are taxed so it will be closer to $190-200m total than $290m. This is my reasoning.. I agree with Harry Long that dividend reinstatement is entirely likely within 24 months if the JV gets approval. The first 24 months would deliver some $130m (after taxes) + $80-120m in FCF to pay down debt. After that, the dividend payout ratio could be quite high right from the start. Packer, what would you estimate to be a fair EV/EBITDA for ALSK if the JV gets approval? The leverage for the equity is huge. Link to comment Share on other sites More sharing options...
Packer16 Posted June 17, 2013 Author Share Posted June 17, 2013 ALSK has about $200 million of NOLs so they will pay closer to $30 m then $100 m these gains/profits. Packer Link to comment Share on other sites More sharing options...
Philip Morris IV Posted June 17, 2013 Share Posted June 17, 2013 Value Line just released a report that is generally optimistic. They like the AWN deal and see good potential but are wary of the competition from VZ.ALSK_VL_Jun13.pdf Link to comment Share on other sites More sharing options...
GrizzlyRock Posted June 18, 2013 Share Posted June 18, 2013 I looked fairly hard at the bonds but couldn't get comfortable with the degree of operating leverage. Lot of high margin backhaul & roaming rev on the network - tough to tell how that shakes out after Verizon enters... Link to comment Share on other sites More sharing options...
Packer16 Posted June 18, 2013 Author Share Posted June 18, 2013 Verizon is only entering the wireless space so all the backhaul will go to ALSK or GNCMA and the roaming will decline but with the $290 million in payments the coverage will increase considerably (5x) if you use wireline EBITDA plus 1/3rd of AWNs EBITDA (pre-synergy). This does not include increases of backhaul or the $30 million in synergies which would increase coverage even more. Packer Link to comment Share on other sites More sharing options...
tombgrt Posted June 27, 2013 Share Posted June 27, 2013 Didn't they expect approval (or not) on the JV by mid-june? It's quiet! Link to comment Share on other sites More sharing options...
Packer16 Posted June 27, 2013 Author Share Posted June 27, 2013 They were delayed in approval as a new FCC person is going to have to approve before it is presented to the FCC board. GNCMA anticpates closing the AWN transaction in July per the annual meeting discussion. Packer Link to comment Share on other sites More sharing options...
Phaceliacapital Posted June 28, 2013 Share Posted June 28, 2013 Just spoke with a member of the FCC transaction team concerning the approval. He said that their has been a change in management at the FCC & their is an acting Chairman who has been trying to get up to speed for just a couple of weeks now. He knew exactly which case we were referring to between GCI & ACS & that they were aware it is already past the deadline for a decision from the FCC. He said it would probably be a few more weeks out before any decision was made. He said that because of the type of approval needed, the acting chairman would need to accept the proposition before it was brought before the board to be voted on Link to comment Share on other sites More sharing options...
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