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Redwood Broadband · RWBB

DEMO DATAUNDERWRITING ASSUMPTIONHOLD
Five-minute case summary

Redwood Broadband

DEMO DATAUNDERWRITING ASSUMPTION
HOLD
1
The opportunity
Demo purchase of $100M face of Second-Lien Notes 10.50% at 78.0 (cash investment $78.4M): current yield 13.5%, yield to maturity 21.3%.
2
The question
Does a 21.3% yield on a rank-2 secured claim compensate for 100% probability-weighted default risk and 94% severe-case loss?
3
The thesis
Network assets (~$5.2B replacement-cost-based) provide asset coverage of 1.2x of total debt, but cash flow after capex is negative. The 10.5% second-lien at 78 is the fulcrum candidate in a restructuring where unsecured holders are the first to take losses.
4
The risk (what causes loss)
  • Severe-case valuation recovery of 6% is below the 78.0 purchase price: a 94% loss given default.
  • Thin interest coverage: EBITDA / interest 1.75x at FY2025A (EBITDA could fall 43% before coverage hits 1.0x).
  • Refinancing: $1700M maturity in FY2028E; only $254M projected liquidity; $1446M refinancing requirement.
  • High leverage: net debt / EBITDA 6.7x (maximum in policy 6.0x).
5
The protection
  • Secured, rank 2: $1.9B ranks ahead.
  • Base-case refinancing tests pass for all 4 maturing tranche(s); 0 are repaid from cash.
  • Equitization optionality at the fulcrum
  • 13%+ current yield
6
The base case
Base case (55%): revenue -1.5% in FY2026E, EBITDA margin 38.0%; payment default in FY2027E; IRR 18.3%, MOIC 1.58x vs 12% hurdle.
7
The downside
Downside (30%): EBITDA $516M at the trough, peak net leverage 9.2x, covenants breach in FY2026E; default in FY2027E; IRR 11.0%. Severe (15%): default in FY2027E, IRR -40.6%.
8
The recovery
If the company defaults, recovery value is $2.1B (going concern) in the severe case → 6% recovery (94% LGD) on the target tranche; downside 80%.
9
The decision
HOLD. HOLD (do not size yet): Expected-cash-flow IRR (probability-weighted) clears hurdle (10.8% vs ≥ 12.0%); Net leverage within maximum (6.7x vs ≤ 6.0x); Covenant headroom (base case, minimum) (-3.9% vs ≥ 15.0%).

Generated from the structured model (no free-text generation beyond the analyst’s thesis and risk lists). Hypothetical terms are underwriting assumptions; nothing here is a real transaction.