Redwood Broadband (RWBB) — Second-Lien Notes 10.50%
Executive Summary
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%. Recommendation: HOLD. Credit score 36/100 (High risk). Base-case IRR 18.3%, downside 11.0%, severe -40.6%; probability-weighted IRR 10.8% vs a 12% hurdle; weighted P(default) 100%; severe-case valuation recovery 6%. 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%).
Investment 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.
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?
Company Overview
Regional cable and fiber operator with accelerating customer losses and the largest debt load in our universe. HQ Denver, CO; Telecom / Regional Fiber & Cable. FY2025A revenue $1.6B, EBITDA $608M (38.0% margin); total debt $4.2B, cash $150M. DEMO DATA
Industry / Market
Cable operators face cord-cutting and fixed-wireless competition; fiber-to-the-home assets retain strategic value but require large capex.
Historical Financial Performance
| $M | FY2022A | FY2023A | FY2024A | FY2025A |
|---|---|---|---|---|
| Revenue | $1.7B | $1.7B | $1.6B | $1.6B |
| % growth | -2.3% | -2.4% | -2.4% | |
| Direct costs / COGS | $619.2M | $621.6M | $615.0M | $608.0M |
| Gross profit (NOI for real estate) | $1.1B | $1.1B | $1.0B | $992.0M |
| % margin | 64.0% | 63.0% | 62.5% | 62.0% |
| Operating expenses (cash, adjusted) | $412.8M | $403.2M | $393.6M | $384.0M |
| EBITDA (company-adjusted basis) | $688.0M | $655.2M | $631.4M | $608.0M |
| % margin | 40.0% | 39.0% | 38.5% | 38.0% |
| D&A | $378.4M | $369.6M | $360.8M | $352.0M |
| Share-based compensation | $0.0M | $0.0M | $0.0M | $0.0M |
| EBIT | $309.6M | $285.6M | $270.6M | $256.0M |
| Interest expense | $295.4M | $312.8M | $330.1M | $347.5M |
| EBT | $14.2M | ($27.1M) | ($59.5M) | ($91.5M) |
| Taxes | $3.6M | $0.0M | $0.0M | $0.0M |
| Net income (model basis) | $10.7M | ($27.1M) | ($59.5M) | ($91.5M) |
| Capex | $361.2M | $352.8M | $344.4M | $336.0M |
| Working capital & other cash items | ($0.8M) | ($1.2M) | ($1.2M) | ($1.2M) |
| Free cash flow | $28.7M | ($9.1M) | ($41.9M) | ($74.3M) |
Capital Structure
| Tranche | Rank | Secured | Face value | Rate | Maturity | Mark / price |
|---|---|---|---|---|---|---|
| Revolver | 1 | Yes | $200.0M | S+335bp | 2027-12-31 | — |
| First-Lien Term Loan | 1 | Yes | $1.7B | S+415bp | 2028-08-31 | 91.0 |
| Second-Lien Notes 10.50% | 2 | Yes | $1.0B | 10.50% | 2029-03-15 | 78.0 |
| Senior Unsecured Notes 6.50% | 3 | No | $1.3B | 6.50% | 2030-05-15 | 58.0 |
Total debt $4.2B (6.9x EBITDA); net debt $4.0B; liquidity $350M; loan-to-value through the target tranche 87%.
Credit Analysis
Net leverage 6.7x, EBITDA / interest 1.75x, FCF / debt -1.8%, DSCR 0.7x, liquidity ratio 1.0x. Score components: Leverage 1/15, Coverage 3/15, Liquidity 3/10, Free cash flow 0/10, Maturity risk 1/10, Margin stability 10/10, Revenue stability 8/8, Asset coverage 5/12, Industry risk 5/10. Score change vs FY2024A (same capital structure): 38 → 36 (Net leverage increased from 6.4x to 6.7x (-0.7 pts, negative); Interest coverage fell from 1.9x to 1.7x (-0.6 pts, negative); Liquidity ratio fell from 1.0x to 1.0x (-0.3 pts, negative); FCF / debt fell from -1.0% to -1.8% (-0.6 pts, negative)).
Debt Maturity Profile
| Period | Debt due | % of debt | Projected liquidity (Base) | Refinancing requirement |
|---|---|---|---|---|
| FY2027E | $200M | 5% | $254M | — |
| FY2028E | $1.7B | 40% | $254M | $1.4B |
| FY2029E | $1.0B | 24% | $82M | $918M |
| FY2030E | $1.3B | 31% | $0M | $1.3B |
Risk flag: $1700M maturity in FY2028E; only $254M projected liquidity; $1446M refinancing requirement.
Risk flag: $1000M maturity in FY2029E; only $82M projected liquidity; $918M refinancing requirement.
Risk flag: $1300M maturity in FY2030E; only $0M projected liquidity; $1300M refinancing requirement.
| Tranche | Matures | Balance at maturity | Cash on hand | Net lev. (test ≤) | Pro-forma coverage (test ≥) | Refi rate | Interest burden after | Result | Resolution |
|---|---|---|---|---|---|---|---|---|---|
| Revolver | FY2027E | $145.9M | $0M | 7.0x (8.5x) | 1.74x (1.20x) | 9.5% | $13.9M | REFINANCING PASS | Refinanced |
| First-Lien Term Loan | FY2028E | $1.6B | ($87M) | 7.2x (8.5x) | 1.62x (1.20x) | 9.5% | $156.7M | REFINANCING PASS | Refinanced |
| Second-Lien Notes 10.50% | FY2029E | $1.0B | $0M | 7.3x (8.5x) | 1.59x (1.20x) | 9.5% | $95.0M | REFINANCING PASS | Refinanced |
| Senior Unsecured Notes 6.50% | FY2030E | $1.3B | ($45M) | 7.6x (8.5x) | 1.40x (1.20x) | 9.5% | $123.5M | REFINANCING PASS | Refinanced |
Base Case
Revenue CAGR -1.5%; FY2030E EBITDA $576M (38.8% margin); trough EBITDA $576M; peak net leverage 7.8x; minimum EBITDA / interest 1.54x; cumulative FCF ($435M). Payment default modelled in FY2027E; target-tranche recovery 100%. IRR 18.3%, MOIC 1.58x.
Downside Case
Revenue CAGR -2.4%; FY2030E EBITDA $516M (36.4% margin); trough EBITDA $516M; peak net leverage 9.2x; minimum EBITDA / interest 1.40x; cumulative FCF ($679M). Payment default modelled in FY2027E; target-tranche recovery 80%. IRR 11.0%, MOIC 1.32x.
Severe Downside
Revenue CAGR -6.2%; FY2030E EBITDA $395M (34.0% margin); trough EBITDA $386M; peak net leverage 12.9x; minimum EBITDA / interest 0.96x; cumulative FCF ($1.0B). Payment default modelled in FY2027E; target-tranche recovery 6%. IRR -40.6%, MOIC 0.35x.
Covenant Analysis
| FY2026E | FY2027E | FY2028E | FY2029E | FY2030E | |
|---|---|---|---|---|---|
| Current metric | 6.89x | 7.08x | 7.27x | 7.53x | 7.79x |
| Covenant | ≤ 7.50x | ≤ 7.50x | ≤ 7.50x | ≤ 7.50x | ≤ 7.50x |
| Headroom | 0.61x (8%) | 0.42x (6%) | 0.23x (3%) | −0.03x (-0%) | −0.29x (-4%) |
| Status | PASS | PASS | PASS | BREACH | BREACH |
| FY2026E | FY2027E | FY2028E | FY2029E | FY2030E | |
|---|---|---|---|---|---|
| Current metric | 7.68x | 8.35x | 8.59x | 8.88x | 9.16x |
| Covenant | ≤ 7.50x | ≤ 7.50x | ≤ 7.50x | ≤ 7.50x | ≤ 7.50x |
| Headroom | −0.18x (-2%) | −0.85x (-11%) | −1.09x (-14%) | −1.38x (-18%) | −1.66x (-22%) |
| Status | BREACH | BREACH | BREACH | BREACH | BREACH |
Recovery Analysis
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%. Recovery value = MAX(going concern $2.1B, liquidation $1.9B) + cash, less administrative costs; severe case struck at FY2027E.
| Claim (by seniority) | Rank | Claim | Recovery | Recovery % | Loss | Loss % |
|---|---|---|---|---|---|---|
| Recovery value | $2.1B | |||||
| Less: administrative / DIP costs | ($84.8M) | |||||
| Revolver | 1 | $258.4M | $258.4M | 100.0% | $0.0M | 0.0% |
| First-Lien Term Loan | 1 | $1.7B | $1.7B | 100.0% | $0.0M | 0.0% |
| Second-Lien Notes 10.50% | 2 | $1.0B | $64.9M | 6.3% | $961.3M | 93.7% |
| Senior Unsecured Notes 6.50% | 3 | $1.3B | $0.0M | 0.0% | $1.3B | 100.0% |
| Total claims | $4.3B | $2.0B | $2.3B | |||
| Equity (residual) | $0.0M | Wiped out | ||||
Investment Returns
| Base Case | Downside | Severe Downside | |
|---|---|---|---|
| Face value / purchase price / cash investment | $100M / 78.0 / $78.4M UNDERWRITING ASSUMPTION | ||
| Cash interest + exit/recovery proceeds | $21.0M + $102.6M | $21.0M + $82.6M | $21.0M + $6.5M |
| Capital gain / (loss) vs purchase price | $24.6M | $4.6M | ($71.5M) |
| MOIC | 1.58x | 1.32x | 0.35x |
| IRR (hurdle 12%) | 18.3% | 11.0% | -40.6% |
Key Risks
- 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).
- Severe case produces a payment default in FY2027E.
Key Protections
- 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
Catalysts
- Revolver Dec-2027 maturity
- Fiber asset sale process
- Capex cut announcement
Due Diligence Items
| Item | Status | Priority | Open question |
|---|---|---|---|
| Historical financials tied to filings | In Progress | High | Do model inputs reconcile to audited statements? |
| Revenue and customer concentration | Issue Identified | Medium | Top-10 customer share and contract terms? |
| Supplier concentration | Not Started | Low | Any single-source dependencies? |
| Competitive position and management | Not Started | Medium | Share trend and management track record? |
| Debt documentation review | Not Started | High | Priming / drop-down protections and baskets? |
| Covenant package and definitions | In Progress | High | Covenant EBITDA definition and headroom? |
| Maturity profile and refinancing plan | In Progress | High | Is the refinancing plan credible at current leverage? |
| Collateral and lien perfection | Not Started | Medium | What assets secure the instrument? |
| Litigation and contingent liabilities | In Progress | Medium | Any material claims ahead of creditors? |
| Guarantees and structural subordination | In Progress | Medium | Which entities guarantee; any non-guarantor leakage? |
| Asset valuation / appraisal support | In Progress | High | Independent value vs assumed asset base? |
Recommendation
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%).
| Test | Actual | Required | Weight | |
|---|---|---|---|---|
| ✓ | Base-case IRR clears hurdle | 18.3% | ≥ 12.0% | core |
| ✗ | Expected-cash-flow IRR (probability-weighted) clears hurdle | 10.8% | ≥ 12.0% | core |
| ✓ | Downside IRR stays above floor | 11.0% | ≥ 0.0% | core |
| ✓ | Downside recovery meets minimum (valuation waterfall) | 80.5% | ≥ 60.0% | core |
| ✓ | Base-case refinancing succeeds | PASS | PASS | core |
| ✓ | Entry yield meets minimum | 21.3% | ≥ 9.0% | secondary |
| ✗ | Net leverage within maximum | 6.7x | ≤ 6.0x | secondary |
| ✗ | Covenant headroom (base case, minimum) | -3.9% | ≥ 15.0% | secondary |
| ✗ | Principal protected in severe case (recovery ≥ price) | 6 vs 78.0 | recovery ≥ price | secondary |
| ✗ | No unresolved high-priority diligence | 5 open | 0 open | secondary |
What would change my mind?
- EBITDA declines more than 43% from FY2025A (coverage < 1.0x) — or more than 11% (first covenant breaks).
- The entry price is above 90.3: the base case no longer earns the 12% hurdle (assumed price 78.0).
- Severe-case recovery returns the purchase price only if the distressed valuation multiple is at least 7.5x EBITDA (the severe case assumes 5.5x); the question is how much cushion we want.
- Collateral / enterprise value falls more than 10% from the base-case valuation: the tranche starts to take losses.
- Market access weakens: base-case pro-forma coverage at refinancing is 1.74x vs the 1.20x test, at an assumed 9.5% refinancing rate — a higher spread or lower EBITDA flips the test.
Sources (3)
| Source | Document | Data type | Period | Accession | Doc date | Retrieved | Class |
|---|---|---|---|---|---|---|---|
| CreditIQ demo dataset | Redwood Broadband — illustrative financial statements FY2022–FY2025 | Income statement / cash flow | FY2022–FY2025 | — | 2026-03-31 | 2026-03-31 | DEMO DATA |
| CreditIQ demo dataset | Redwood Broadband — illustrative capital structure & covenants | Debt schedule | As of 2026-03-31 | — | 2026-03-31 | 2026-03-31 | DEMO DATA |
| CreditIQ demo dataset | Illustrative indicative bid marks (% of par) | Market price | 2026-03-31 | — | 2026-03-31 | 2026-03-31 | DEMO DATA |
Generated entirely from the structured model (inputs → analysis → memo): every figure reconciles to the Excel workbook (see Settings → Reconciliation). Hypothetical terms are underwriting assumptions. Not investment advice.