WEBVTT - Lumen Overhauls Debt Load With Eye on Growth

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News. You're listening to Bloomberg

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<v Speaker 1>BusinessWeek with Carol Masser and Tim Stenoveek on Bloomberg Radio.

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<v Speaker 1>It is time for another edition of the CFO of Briefing.

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<v Speaker 1>This week we are joined by Chris Stansbury, chief financial

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<v Speaker 1>Officer and EVP of the Louisiana based publicly traded global

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<v Speaker 1>communication services company Loomen Technologies, marketcap of about six point

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<v Speaker 1>eight billion dollars shares so far this year, up more

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<v Speaker 1>than twenty five percent. Also with us here in the

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<v Speaker 1>studio is Nina Trentman, Bloomberg News Senior Editor. She writes

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<v Speaker 1>the CFO Briefing newsletter. You can subscribe to it at

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<v Speaker 1>Bloomberg dot com slash CFO Dash Briefing. Chris is featured

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<v Speaker 1>in the most recent edition of the newsletter. Chris joins

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<v Speaker 1>us from Denver. Chris, welcome the company divesting non core assets.

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<v Speaker 1>For example, earlier this year announcing the sale of its

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<v Speaker 1>mass market residential fiber unit to AT and T for

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<v Speaker 1>five point seventy five billion dollars in cash. Now, what

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<v Speaker 1>you're planning to do is leasing existing fiber routes to

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<v Speaker 1>hyper scalers and social media companies to transport AI traffic

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<v Speaker 1>between data centers. I want to know how big of

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<v Speaker 1>an opportunity is it to lease to these hyperscalers.

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<v Speaker 2>Yeah, thanks for having me today. It's been quite a

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<v Speaker 2>journey at Luhman over the last three and a half years.

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<v Speaker 2>And really what we see as an opportunity and have

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<v Speaker 2>seen really through our transformation is the AI multi cloud

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<v Speaker 2>world that's being developed right now. The network of yesterday

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<v Speaker 2>wasn't built to support it. And if you really think

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<v Speaker 2>about the economics of AI and the economics of a GPU,

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<v Speaker 2>you want to keep that GPU fed as much as

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<v Speaker 2>it can consume so that they're spinning constantly, and that's

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<v Speaker 2>where you get the economic benefit. So the problem with

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<v Speaker 2>the network that has existed so far is that as

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<v Speaker 2>those data get spread further and further away, as data

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<v Speaker 2>centers are in search of power and cooler temperatures, there's

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<v Speaker 2>latency problems and there's access problems. It takes a long

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<v Speaker 2>time for networking to adjust. So what we're doing is

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<v Speaker 2>building a mesh that basically goes anywhere to anywhere where

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<v Speaker 2>the customer on demand can move those workloads where they

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<v Speaker 2>need them in super low latency manner. So that's the

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<v Speaker 2>big change, and so it's not just hyperscalers, it's really

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<v Speaker 2>the full connectivity between the hyper scalers running those clouds,

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<v Speaker 2>the hyperscalers obviously building those AI algorithms, and large enterprise

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<v Speaker 2>customers who are on the AI journey now and we'll

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<v Speaker 2>be using it much more heavily in the future.

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<v Speaker 3>Chris, thanks for joining us again. It's great to chat.

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<v Speaker 3>Just wondering with the AT and T deal and also

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<v Speaker 3>what you've been done in capital markets in recent weeks.

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<v Speaker 3>You've really improved your financing structure. You're saved one hundreds

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<v Speaker 3>of millions in interest expenses a year. Talk to us

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<v Speaker 3>a little bit about that.

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<v Speaker 2>Yeah, if you go back in time when we all

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<v Speaker 2>joined Lumen and saw this opportunity, the balance sheet was

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<v Speaker 2>not our friend. We had a lot of debt. Half

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<v Speaker 2>that debt was due in one year. It was due

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<v Speaker 2>in twenty twenty seven, and that was job number one.

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<v Speaker 2>We really needed to strengthen the foundation of the company

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<v Speaker 2>so that we could go do the things that we're

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<v Speaker 2>executing against today. So that was really accomplished through a

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<v Speaker 2>couple of things. One is we did the largest out

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<v Speaker 2>of court debt restructuring in history that's not quite two

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<v Speaker 2>years ago, and that allowed us to push those maturities

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<v Speaker 2>out a bit, but at a significant expense. Our annualized

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<v Speaker 2>interest expense at that point was about one point four

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<v Speaker 2>billion dollars. But from there we saw in the middle

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<v Speaker 2>of those negotiations, we saw this opportunity with the hyperscalers,

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<v Speaker 2>and soon after that that debt negotiation was completed, we

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<v Speaker 2>signed eight billion dollars worth of deals and that has

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<v Speaker 2>grown since. That allowed us to monetize an asset that

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<v Speaker 2>has been in the ground for twenty five years, which

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<v Speaker 2>is conduit that we can blow fiber through to meet

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<v Speaker 2>the needs of the hyperscalers in a fairly short period

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<v Speaker 2>of time versus building new and that's really the core

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<v Speaker 2>enduring advantage of this business. And then we layer the

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<v Speaker 2>digital on top of that. But the cash from those

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<v Speaker 2>deals allowed us to refinance and delever, so we've made

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<v Speaker 2>a number of moves so far this year, and with

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<v Speaker 2>the sale of the consumer fiber business to AT and

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<v Speaker 2>T when that closes, our debt will be down to

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<v Speaker 2>just over thirteen billion dollars in Our interest expense on

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<v Speaker 2>an annualized basis will be about seven hundred million, so

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<v Speaker 2>in a two year period, dramatically reshaping both the quantum

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<v Speaker 2>of debt as well as the maturity curve. And now

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<v Speaker 2>that balance sheet is a real asset for US as

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<v Speaker 2>we invest in the AI multi cloud world.

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<v Speaker 3>Yeah, IM actually wondering about the investments. Of course, there's

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<v Speaker 3>a lot of campex that's required in a business like yours.

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<v Speaker 3>We've seen earlier this year the One Big Beautiful Bill

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<v Speaker 3>Act that was passed, which tries to encourage investment, including

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<v Speaker 3>in capital investments, by allowing USCFO to depreciate certain investments faster,

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<v Speaker 3>Like do you think this will make an impact as

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<v Speaker 3>you're thinking about future investments in your business here in

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<v Speaker 3>the US.

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<v Speaker 2>Definitely. If you go back to the twenty seventeen legislation

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<v Speaker 2>that the big problem with that legislation is is it

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<v Speaker 2>created an unequal playing field between say, more service oriented

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<v Speaker 2>or asset light companies and asset heavier infrastructure companies. And

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<v Speaker 2>if you look at where the administration is focused today,

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<v Speaker 2>it's clearly around infrastructure. I think the US has the

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<v Speaker 2>biggest challenges really is making sure that we don't get

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<v Speaker 2>too far behind with our infrastructure. So the recent legislation

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<v Speaker 2>has leveled that playing field, and really that was around

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<v Speaker 2>two things. The first is is that there was interest

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<v Speaker 2>deductibility limits that used to exist that have been relaxed

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<v Speaker 2>dramatically because again, asset heavy infrastructure companies tend to have

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<v Speaker 2>higher leverage. And then to your point, the ability to

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<v Speaker 2>accelerate depreciation to help on the tax side is significant.

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<v Speaker 2>That reduces the risk that companies that are investing in

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<v Speaker 2>infrastructure take on when they make those kinds of investments.

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<v Speaker 2>So it's absolutely an opportunity for us.

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<v Speaker 1>Chris cann have to leave it there, but you've got

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<v Speaker 1>to come back and join us once again. And I

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<v Speaker 1>do remind everybody that Chris is featured in the most

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<v Speaker 1>recent edition of the CFO Briefing newsletter. You can sign

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<v Speaker 1>up for it at Bloomberg dot com slash CFO Dash Briefing.

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<v Speaker 1>We've been speaking with Chris Stansbury, CFO and EVP of

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<v Speaker 1>Luminant Technologies also joining us here in the studio. Nina Trentman,

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<v Speaker 1>Bloomberg News Senior Editor. Sign up for that CFO Briefing newsletter.