Cincinnati Bell Inc. Bond Investment

Some of you with a 9 to 10 year time horizon may want to invest in Cincinnati Bell Inc. 8.375% of 10/15/2020 bonds. As of April 18, 2011, the bond sold for $998.75. That means every year; the bond pays $83.75 and gives $1,000 at maturity. So the bond yields 8.394%. So one bond to maturity would give you an approximate total of $795.63.

Cincinnati Bell Inc. is a Standard and Poor’s “B” rated company.

Cincinnati Bell (NYSE: CBB) is one of the nation’s most-respected and best-performing local exchange and wireless providers, with a legacy of unparalleled customer service excellence and financial strength” according to the companies propaganda. Cincinnati Bell provides a wide range of telecommunications products and services to residential and business customers in Ohio, Kentucky and Indiana.
The common stock sells for $2.69 as of April 18, 2011 day trading. It is giving a dividend of 40 cents with a yield of 14.87%. You may think that this is better than the bond yield of 8.394%. It is for now but the company earns 8 cents per share and spends 40 cents per share on dividends. So the dividend is not secure. Remember, the company does not have to pay a common stock dividend but must pay the bond interest.

Below is the business wire on the company.

CHICAGO, Apr 14, 2011 (BUSINESS WIRE) -- Fitch Ratings has affirmed Cincinnati Bell Inc.'s (CBB) Issuer Default Rating (IDR) at 'B'. Fitch has also upgraded CBB's senior unsecured ratings to 'B+/RR3' from 'B/RR4'. A full list of rating actions follows at the end of this release. The company's Rating Outlook is Stable.

Fitch's 'B' IDR for CBB reflects expectations for relatively high, albeit stable leverage and its diversified revenue profile. In addition, its wireline and wireless businesses generate strong free cash flows. Risk factors incorporated into the rating include the competitive pressure on CBB's wireline and wireless segments, as well as the expansion of its data center business. The $525 million acquisition of CyrusOne Networks, LLC (CyrusOne), a data center operator, closed in June 2010. With respect to the data center business, the acquisition represented CBB's first significant step outside of its traditional service territory. In Fitch's view, CBB's expansion of the data center business nationally and internationally entails additional risk.

As a result of the CyrusOne acquisition, CBB's year-end 2010 leverage rose to approximately 5.0 times (x) from 4.1x at the end of 2009. Leverage may be slow in returning to historical levels as the data center business - even with the acquisition - is not yet of a sufficient scale where its growth rates will significantly overcome the effects of competitive pressures on EBITDA in the wireline and wireless business. Additionally, given investment needs in the data center business to sustain higher rates of growth, Fitch believes CBB is unlikely to direct cash flows to material debt reduction, and, for the most part, leverage reductions will depend on EBITDA growth.
CBB's debt on Dec. 31, 2010, totaled $2.52 billion, an increase of $544 million from Dec. 31, 2009, with the rise stemming from the acquisition of CyrusOne in June 2010. At the end of 2010, the company did not have any debt outstanding on its $210 million secured revolving credit facility, and the amount available was $186.9 million, after the effect of LOCs.

On June 11, 2010, the company entered into a new credit facility consisting of a $210 million revolving line of credit and a $760 million secured term loan. The new revolver, which matures in June 2014, replaced a facility of the same size that would have matured in August 2012. The $760 million secured term loan B facility, which would have matured in 2017, was used to repay the $205 million outstanding on the previous term loan B facility, to close the CyrusOne acquisition and to pay related fees and expenses. The repayment of the term loan B facility through the senior unsecured note offering in the latter half of 2010 eliminated potential refinancing risk in 2014, when the term loan facility would have matured under certain circumstances. In any event, the notes mature in 2020, whereas the expected maturity of the Term Loan B would have been in 2017.