$750 Million Secured Refinancing: Cogent outlined a four-step restructuring — moving IRU liabilities, divesting and selling North American/Western European leases (about $569M) to its infrastructure unit, then a 10-year leaseback that is treated as an operating lease — to be able to swap $750M of unsecured debt and secured debt for productive debt. 3.91x safe profit.
Capital controls and discretionary asset sales: The company slashed its dividend by 98% from $0.02/share and halted material purchases until net profit reached 4x, and it will voluntarily sell 10 data centers from a non-binding LOI (customer interest reportedly >$144M) to boost growth, although the group’s credit is not required to be restored.
Wave (Wave) Growth Objective: Cogent is still targeting $500M wave runs by mid-2028 despite waves generating ~$40M last year, an expanded footprint (1,096 targeted data centers, 518 delivered sites), 100% YoY wave growth last year, and a North American TAM of around $2.
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Cogent Communications (NASDAQ:CCOI) CEO and founder Dave Schaeffer outlined the planned debt refinancing and related structural changes during remarks at the JP Morgan Credit Conference in Miami, explaining the steps the company has taken to increase its secured borrowing capacity and strengthen collateral for lenders. Schaeffer also provided an update on Cogent’s former Sprint assets, a potential data center sale process, and progress in the company’s wavelength (“Wave”) business.
Schaefer said Cogent has been a high yielder since 2010, with debt issued at the level of the “Cogent Group” under a publicly owned company. He described a structure in which Cogent Holdings sits above two parallel subsidiaries: “The Group,” which has operations and high-yield debt, and “Zabna,” which has a separate set of assets and liabilities including an asset-backed privacy IPv4 lease business with $380 million in debt.
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In the borrower group where high-yield bondholders have claims, Schaeffer listed three debt components: $623 million in capital/finance lease obligations (IRUs), $600 million in secured debt, and $750 million in unsecured debt. He said loans are limited to secured leverage (not more than 4x), including unsecured (not more than 6x), and a 2x debt service coverage test.
Schaefer said the company implemented four separate actions aimed at allowing unsecured debt to be refinanced with secured debt while improving the bondholder’s collateral status. He summarized the steps as follows:
Transfer IRU-related responsibilities to a subsidiary under the groupSeparation of capital leases and related liabilities.
Break down leases by geographySeparation of North American and Western European capital leases (total liability $569 million) from the rest of the world.
Sell the North American/Western European leasing subsidiary to Infrastructure from the groupFunded by net cash payments stemming from restricted payments, $569 million of “very high” debt was removed from the group’s balance sheet.
Lease the fiber back from the infrastructure to the group for 10 years So the arrangement is treated as an operating lease rather than a finance lease under GAAP.
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He said the operating lease structure resulted in a $69 million reduction in group EBITDA reflecting cash payments, with payments detailed “dollar for dollar” without markup. On a pro forma basis including $750 million of unsecured debt refinancing, with $750 million of secured debt, Cogent would be 3.91x secured leverage under the 4x test and “nearly three times debt service,” Shaffer said. He added that the company would have about $100 million of spare capacity and about $800 million of unreserved capacity, but said the company “does not intend to use it”.
Under the plan, Schaefer said the new $750 million secured debt would be complemented by Cogent’s existing 6.5% secured debt due in 2032, and that the existing secured bonds would be temporarily extended by one year so that the new bonds mature at least one year later.
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At the holding-company level, Schaeffer said Cogent is committed to “dramatically reducing return on investment” until the company reaches four times net profit across all subsidiaries. He said Cogent is currently at 6.6x net profit and has cut dividends by 98%, from $1.01 per share to $0.02 per share, with dividends expected to remain flat at that level. He also said that Cogent does not intend to do “any material equity buybacks” until leverage reaches the 4x target, although fewer purchases may be made.
Schaefer also said Cogent would voluntarily commit proceeds from the remaining, non-binding letter of intent to sell 10 data centers — assets held in infrastructure outside the borrower group — to help Cogent Group raise credit. He stressed that the refinancing could happen before the deal closes and that the data center revenue was “nice to have, but not essential.” He said the cash contribution to the group would face a limited repayment test there, while Cogent uses some of its limited repayment capacity to fund ongoing operational burnout in infrastructure.
Discussing the LOI, Schaefer said it was with a “major global infrastructure fund” and involved 10 facilities, with the proposed consideration described as “significantly over $144 million,” which he said was in the public domain. He explained that one of the two facilities from the previous LOI (which fell through after last-minute renegotiations) is included in the new package of 10 facilities. He said current prospective customers had visited eight of the ten facilities with a third-party consultant as of last week, had access to the data room, and planned to complete the final two site visits during the current week.
He said that the first item of gating confirms the interest in the availability of electricity. Schaeffer said the sites were “fully powered to 109 megawatts in 2015,” but after Sprint shut down its TDM voice network, the facility received minimal power. He said Cogent has emails and confirmations from the utility’s engineering departments indicating the availability of electricity at tariff rates if Cogent commits to use, and that customers confirm these confirmations by performing Phase One environmental work and title reviews.
Regarding the competition, Schaefer said the company had already run a process and selected a previous winner out of “probably half a dozen LOIs” and that Cogent was continuing to make “backup LOIs,” currently estimating five to ten such agreements. He also said that Cogent has faced competitors seeking justification for selling assets for financing, and that Cogent’s approach is to make sure that one party can perform before granting the concession.
Schaeffer questioned Cogent’s previous goal of reaching a $500 million run rate in the Waves business by mid-2028, acknowledging that the business generated $40 million last year. He said he still believes the multi-year goal is achievable, pegs the total North American urban wave reach market at about $2 billion, and Cogent claims it has five competitive advantages: wide footprint, fast delivery, exclusive routes, high reliability, and low prices.
He said Cogent’s target footprint had expanded from an initial 800 data centers to 1,096 by the end of the fourth quarter, and that the company had delivered waves to 518 sites and about 200 unique customers. Schaeffer said that the work to convert the wave network to TDM voice network was completed by December 31, 2024, and that next year the wave business grew 100% year over year and grew 19% sequentially in the fourth quarter.
While Cogent notes it “doesn’t provide quarterly guidance,” Schaefer said investors should focus on multi-year goals including 6% to 8% annual top-line growth across all products, average annual margin expansion of about 200 basis points, and maintaining a debt maturity profile that provides adequate flow and liquidity. He added that waves remain important because Cogent has about 2% market share in this segment compared to 25% in transit and 35% in its multi-tenant office building business, and said online products have a share margin of “more than 90%”.
Cogent Communications (NASDAQ:CCOI) is a multinational Internet service provider specializing in high-speed Internet access and data transport services. The company operates one of the largest Tier 1 IP networks in the world, providing reliable, low-latency connectivity to wholesale and enterprise customers. Cogent’s core services include dedicated Internet access, Ethernet transport, wavelength services, and MPLS-based IP virtual private networks, all delivered over a privately owned, fiber-optic backbone.
In addition to network connectivity, Cogent provides datacentering and managed services designed to support businesses with bandwidth and redundancy needs.
The article “Cogent Communications details $750M secured refi plan, talks data center sales at JPM Credit Conference” was originally published by MarketBeat.
