In early 2009 investment-grade bonds yielded 7 percent and more. Today you’ve got to take on considerable credit or interest rate risk to get that much.
One exception: Windstream Corp 7.875 Percent Note of 11/01/17 (CUSIP: 97381WAJ3). The bond is an obligation of Income Portfolio Aggressive Holding Windstream Corp (NYSE: WIN).
Since it was formed by the merger Alltel Corp and Valor Communications Group five years ago, the company has become a national broadband communications player.
Basic phone service is just 23 percent of revenue, and 93 percent of the network has broadband coverage.
Free cash flow is nearly twice the sum of dividends and capital spending, and the company is expanding its technical and geographic reach with acquisitions.
The latest of these is for PAETEC Holding Corp (NSDQ: PAET), which provides communications services to businesses throughout the US.
Windstream is financing the $891 million deal entirely with stock. It also used mainly equity to buy fiber services provider Q-Comm in late 2010 for roughly $782 million.
That’s kept debt fairly level, even as the company has eliminated all debt maturities until Jul. 3, 2013, and cut interest costs with refinancings.
It hasn’t prevented major credit raters from relegating Windstream’s bonds to junk. But it does make this bonds both low-risk and undervalued, with a yield-to-maturity of nearly 7 percent.
The short maturity of six years protects it from future interest rate spikes.Buy Windstream Corp 7.875 Percent Note of 11/01/17 up to 107 ($1,070). Note that Windstream offers several issues of bonds maturing from 2016 to 2020, all suitable alternatives if these are unavailable.