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What: Shares of regional telecom Windstream Holdings (WINMQ) gained 10.5% in June 2016, according to data from S&P Global Market Intelligence. Windstream's recently separated communications infrastructure unit Communications Sales & Leasing (NASDAQ: CSAL) also skyrocketed last month, rising 15.7% by the end of June. Both stocks stomped the S&P 500 market barometer, which ended the month almost exactly where it began.
So what: Windstream's biggest value driver in June came from the orderly sale of its remaining CS&L holdings.
First, Windstream made a deal with its debt holders to exchange 14.7 million CS&L shares for loan reductions. Performing this transaction on the open market would have amounted to more than a week's worth of average CS&L trading volume, which could have driven share prices through the floorboards. The lender-to-borrower deal structure avoided such issues.
Just a few days later, Windstream walked back to its lenders to hand over the rest of its CS&L shares. The effective sale price per share was about 18% higher this time, since CS&L shares had been rising organically.
These transactions reduced Windstream's ownership of CS&L from 20% to zero, and also sliced the company's estimated interest payments in 2016 from $385 million to $370 million. That's a significant bottom-line boost for a company with negative earnings and roughly breakeven free cash flows.
Now what: Windstream shares have now gained an impressive 42% year to date while CS&L investors like yours truly have enjoyed a 55% paper gain.
On top of that, Windstream offers an effective dividend yield of 6.6% at today's share prices and CS&L's yield stands at 8.3%. The two stocks were severely -- and in my opinion, unfairly -- punished after their separation. The gains in the rearview mirror today only represent a return to the total pre-split value of the two companies.
I'm still waiting for CS&L to start finding significant clients not named Windstream, which would unlock a whole new growth angle in that stock. Meanwhile, Windstream is free to sell an increasingly business-to-business package of local and long-haul data services. I like what's going on under both of these banners.
