$750 million secured refinancing: Cogent outlined a four-step restructure—moving IRU liabilities, splitting and selling North America/Western Europe leases (about $569M) to its Infrastructure unit, then a 10‑year leaseback treated as an operating lease—to enable replacing $750M of unsecured debt with secured debt and produce a pro forma 3.91x secured leverage.
Capital controls and optional asset sale: The company cut its dividend by 98% to $0.02/share and paused material buybacks until net leverage reaches 4x, and it will voluntarily commit proceeds from a non‑binding LOI to sell 10 data centers (buyer interest reportedly >$144M) to bolster Group credit, though the sale is not required for the refinancing.
Wavelength (Waves) growth target: Cogent still targets a $500M Waves run‑rate by mid‑2028 despite Waves generating ~$40M last year, citing a expanded footprint (1,096 targeted data centers, 518 delivered sites), 100% YoY Waves growth last year, and a North American TAM of about $2B.
Cogent Communications (NASDAQ:CCOI) CEO and founder Dave Schaeffer outlined a planned debt refinancing and related structural changes during remarks at J.P. Morgan’s Credit Conference in Miami, describing steps the company has taken to increase secured borrowing capacity and strengthen collateral for lenders. Schaeffer also provided updates on Cogent’s former Sprint assets, a potential data center sale process, and progress in the company’s wavelength (“Waves”) business.
Schaeffer said Cogent has been a high-yield issuer since 2010, with debt issued at the “Cogent Group” level beneath the public holding company. He described a structure in which Cogent Holdings sits above two parallel subsidiaries: “Group,” which houses operations and the high-yield debt, and “Infrastructure,” which holds a separate set of assets and liabilities including an asset-backed securitized IPv4 leasing business with $380 million of ring-fenced debt.
At the borrower group where high-yield bondholders have claims, Schaeffer listed three tranches of debt: $623 million of capital/finance lease obligations (IRUs), $600 million of secured debt, and $750 million of unsecured debt. He said the indentures restrict debt based on secured leverage (no more than 4x), total leverage including unsecured (no more than 6x), and a 2x debt service coverage test.
Schaeffer said the company implemented four discrete actions intended to allow the unsecured debt to be refinanced with secured debt while improving the collateral position of bondholders. He summarized the steps as follows:
Move IRU-related liabilities into a subsidiary under Group, separating capital leases and associated liabilities.
Split the leases by geography, grouping North America and Western Europe capital leases (totaling $569 million of liability) apart from the rest of the world.
Sell the North America/Western Europe lease subsidiary from Group to Infrastructure, funded by a net cash payment sourced from restricted payments, removing $569 million of “most senior” debt from Group’s balance sheet.
Lease the fiber back from Infrastructure to Group for 10 years so the arrangement is treated as an operating lease under GAAP rather than a finance lease.
He said the operating lease structure results in a pro forma $69 million reduction in Group EBITDA reflecting the cash payments, with the payments described as “dollar for dollar” with no markup. Schaeffer said that, on a pro forma basis including refinancing the $750 million unsecured debt with $750 million of secured debt, Cogent would be at 3.91x secured leverage under the 4x test and “roughly three times debt service.” He added that the company would have about $100 million of additional secured capacity and about $800 million of unsecured capacity, but said the company has “no intention of using” either.
Under the plan, Schaeffer said the new $750 million secured debt would sit pari passu with Cogent’s existing 6.5% secured debt maturing in 2032, and that the existing secured bonds would be temporarily extended by one year so that the new bonds mature at least one year later.
At the holdings-company level, Schaeffer said Cogent is committing to “dramatically reduce the return of capital to equity” until the company reaches four times net leverage across all subsidiaries. He stated Cogent is currently at 6.6x net leverage and has reduced its dividend by 98%, from $1.01 per share to $0.02 per share, with the dividend expected to remain fixed at that level. He also said Cogent does not intend to conduct “any material equity buybacks” until leverage reaches the 4x target, though minor buybacks could occur.
Schaeffer also said Cogent will voluntarily commit proceeds from a pending, non-binding letter of intent to sell 10 data centers—assets held in Infrastructure outside the borrower group—to be contributed to Cogent Group to enhance credit. He emphasized the refinancing could occur before closing that transaction and that the data center proceeds were “a nice to have, but not a must-have.” He said cash contributed to Group would be trapped there, subject to restricted payment tests, while noting Cogent uses some restricted payment capacity to fund ongoing operating burn at Infrastructure.
Discussing the LOI, Schaeffer said it is with a “major global infrastructure fund” and involves 10 facilities, with proposed consideration described as “substantially more than $144 million,” which he said is in the public domain. He explained that one of two facilities from a prior LOI (which failed after last-minute renegotiation) is included in the new 10-facility package. He said the current prospective buyer had toured eight of the ten facilities with a third-party consultant as of the prior week, had access to the data room, and planned to complete the last two site visits during the current week.
He said the primary gating item is confirmatory due diligence on power availability. Schaeffer stated the sites were “fully powered to 109 megawatts in 2015,” but since Sprint decommissioned its TDM voice network, the facilities have drawn minimal power. He said Cogent has emails and confirmations from utility engineering departments indicating power availability at tariff rates if Cogent commits to utilization, and that the buyer is validating those confirmations along with conducting Phase I environmental work and title review.
On competitiveness, Schaeffer said the company previously ran a process and selected a prior winner from “probably a half a dozen LOIs,” and that Cogent continues to build “backup LOIs,” estimating five to ten such agreements currently. He also said Cogent has encountered counterparties seeking exclusivity to shop the assets for financing, and that Cogent’s approach is to ensure a party can perform before granting exclusivity.
Schaeffer addressed questions about Cogent’s earlier goal of reaching a $500 million run-rate in the Waves business by mid-2028, acknowledging the business produced $40 million last year. He said he still believes the multi-year target is achievable, citing a North American inter-city wavelength total addressable market of about $2 billion, and asserting Cogent has five competitive advantages: broader footprint, faster delivery, unique routes, higher reliability, and lower prices.
He said Cogent’s targeted footprint has expanded from an initial 800 data centers to 1,096 as of the end of the fourth quarter, and that the company has delivered Waves to 518 sites and about 200 unique customers. Schaeffer said work to convert a TDM voice network into a wave network was completed by December 31, 2024, and that over the next year the wave business grew 100% year over year and 19% sequentially in the fourth quarter.
While noting Cogent “does not give quarterly guidance,” Schaeffer said investors should focus on multi-year objectives including 6% to 8% annual top-line growth across all products, about 200 basis points of annual margin expansion on average, and maintaining a debt maturity profile that provides adequate runway and liquidity. He added that Waves remain important because Cogent has about 2% market share in that segment versus 25% in transit and 35% in its multi-tenant office building business, and said on-net products carry contribution margins “of over 90%.”
Cogent Communications (NASDAQ:CCOI) is a multinational Internet service provider specializing in high-speed Internet access and data transport services. The company operates one of the largest Tier 1 IP networks in the world, offering wholesale and enterprise customers reliable, low-latency connectivity. Cogent’s core services include dedicated Internet access, Ethernet transport, wavelength services, and MPLS-based IP Virtual Private Networks, all delivered over its privately owned, fiber-optic backbone.
In addition to network connectivity, Cogent provides data center colocation and managed services designed to support businesses with demanding bandwidth and redundancy requirements.
