So I will say, that we are going to do what makes economic sense and what preserves or enhances the quality of the credit. And so I think we’ll have ample opportunity to do that — and there is a few ways we could accomplish that, and we are going to continue to evaluate that and be opportunistic about how we manage those going forward. But our intention would be to look to collapse those silos as it is prudent to do so.
Ana Goshko: Okay. And then initially, in order to preserve the two silos, is the master-lease going to remain in place? Because I think, that is a key component of what supports the Uniti credit silo right now.
Paul Bullington: Yeah, the master lease will be an important part of preserving those silos and will stay in place. I don’t know, Kenny, if you want to comment on that any more than that.
Kenny Gunderman: No, no, that’s right, Ana. It will stay in place and there will be an arm’s length relationship between the two silos. And we are perfectly set up between the two companies to continue managing those responsibly. But as Paul said, we certainly want to get to more simplified debt structure as soon as we can. And I don’t think, you mentioned it Paul, but when you look at the maturities of the debt Windstream — the majority of — a large portion of Windstream’s debt is coming due sooner than ours in 2027. And then I think even the bond that matures later and Drew, you can comment on this, is callable in 2026, 2027.
Drew Smith: That’s right, Ana. When you look at the Windstream debt stack, we have got our term loans coming due in 2027, as Kenny noted. And then the bond comes due in 2028 would be — would be callable if something opportunistic would occur.
Ana Goshko: Okay, great. And then final question, if I may. So just on the terms of the pick, what is the rate on that? And is it — not pick I’m sorry, preferred. And is that going to be paid in kind, or is that going to be a cash pay instrument?
Paul Bullington: Yeah, this is Paul. I’ll take that again, the pick. The initial rate on that is 11%. It does step up, start to step up in the out years and is capped at 16% over time. We have the option to pay in cash, or in kind. And I think we are going to manage that prudently as we go forward. I don’t want to sort of lock us into any one particular position, but with regard to how we are going to settle that over time — but we have the option to do either.
Ana Goshko: Okay, thanks so much.
Operator: One moment for the next question. The next question comes from Bora Lee with RBC Capital Markets. Your line is open.
Bora Lee: Thank you. So FTTH was discussed a fair bit on the call for the combined company. How are you thinking about the relative CapEx emphasis on that versus wholesale on a go-forward basis? Thanks.
Kenny Gunderman: Hey Bora. It’s Kenny. I think the capital spend at our fiber business combined with Windstream wholesale will be consistent with what we’ve been spending historically. So, we’re not planning to reduce any of the spend, we are planning to continue investing heavily in that business. But with that said, we do expect capital intensity to continue coming down. And I think that’s primarily a reflection of the continued focus on lease up and our view that particularly on a combined basis, I think the Windstream wholesale business is going to fit very nicely with our existing network. There’s a lot of overlap, as you would expect. And so I think, we are going to be able to continue bringing that capital intensity down, but we’re not going to change the investment philosophy there.
It’s going to continue as it currently is. And with Kinetic, as Drew mentioned and as we agree, I think the investment plan is continuing unaltered, other than we might be expanding it. We are certainly going to be expanding it for the expanded business build and we will report more on that when it is more refined. But I think, that’s going to be an important focus over the next few years in particular. And then after that three year or four year period, you’ll start to see capital intensity come down there as well.
Bora Lee: On the hyperscale demand that you’re seeing. Can you talk about if these are existing routes or new builds and touch on if it is being driven by AI to reach end-users or to connect data centers? Any sense that you might have there?
Kenny Gunderman: Yes, it’s really all the above, Bora. I mean, we are seeing new builds. We’re certainly seeing lease up on existing infrastructure, whether it be dark fiber or waves, as we have talked a little bit about on the new builds the hyperscalers are good partners on helping, get those builds built at economics that work for both parties. And that’s a bit of what we talked about in our prepared remarks. You know, some of what — some of the couple of deals that happened in the first quarter were really new builds, and we haven’t done a lot of that on intercity routes in some time, but we are starting to do more of it driven by that demand, and we do expect to see more of it going forward. And to your point about connecting data centers, that is really what it is.
And it is one of the reasons we are excited about the Tier 2 and 3 routes that we have on this unique network on a combined basis with Windstream wholesale, because I think a lot of these data centers are being put in unique markets, and part of that’s driven by the need to get to less burdened parts of the grid, frankly from a power point of view. And so I think, there is going to be a lot more opportunity for us connecting those data centers, connecting unique Tier 2 and 3 routes, and that’s particularly true on a combined basis.
Bora Lee: Great. One last one, if I could. Can you remind us what approvals you would need and if there are particular jurisdictions that may be the long pole in the tent. I am thinking maybe particular states.
Kenny Gunderman: Yeah. I think we said Bora to expect closing in the second half of 2025. We are going to need federal and state PC approvals. We have a point of view on who the long pole might be. We will reserve calling that out — particularly some of the states in particular. But I think, we’ll leave it at just targeting that second half of 2025 from a closing point of view.
Bora Lee: Got it. Thank you.
Operator: One moment for the next question. And our last question comes from Jeff Harlib with Barclays. Your line is now open.
Jeff Harlib: Hi, thanks. Congratulations on the merger. So I’m just wondering, you have talked about the ABS financing at Uniti and potentially at Kinetic. When you think about down the road as you fund your increased fiber build, I think, it previously was still up in Windstream’s, CapEx would come down and clearly there is going to be more funding for additional passings. Do you see that coming potentially from these ABS transactions or do you see yourselves putting in additional credit facilities to fund this CapEx, as well as for additional liquidity for the combined company?
Paul Bullington: Hey, Jeff, this is Paul. I’ll start with that. And Kenny can certainly jump in and add, if he’d like to. I think, part of the piece of this deal especially with the $300 million commitment that we talked about, this is a fully funded plan, and we have sized the balance sheet and liquidity appropriately to fully fund the plan. Kenny talked about sort of the timing of additional households. So as the current Kinetic build plan winds-down around 2027, the free cash flow profile of the business would allow us to begin investing in incremental homes up towards that $1 million — I’m sorry, the 1 million household number that Kenny and Drew talked about earlier. So I think there is an opportunity to fund that increased build out of cash flow going forward.
If we sequence it in that way, if we wanted to accelerate it, I think there is ample opportunity for us to find the financing to do so. But we are going to evaluate that and we’ll do so if it is prudent and value accretive for the company. So I think, it just depends on sort of the approach that we take there. BEAD is going to figure into — certainly into our plans going forward with how we build out that network and the timing of it as well. So I think, there is more to do there to determine the right timing and the right level of investment. But there is ample opportunity to invest above the existing plan with the free cash flow of the business.
Jeff Harlib: Got it. Okay. And with the Kinetic, potential Kinetic ABS financing happen potentially earlier than that?
Paul Bullington: Yeah, I think that’s something we are going to evaluate. I don’t think, we are quite ready to comment on timing of that, but I definitely think it is like we said before, an opportunity that could allow us to potentially accelerate some of those builds.
Jeff Harlib: Great. Thank you.
Operator: I would now like to turn the call back over to Kenny for closing remarks.
Kenny Gunderman: Thank you. Thank you again for joining us on today’s call. As you heard this morning we are very excited about this combination, which we believe will deliver significant value for shareholders, as well as for employees, customers, and on a broader scale, our communities. I look forward to providing you with additional updates in the coming months. Thank you for joining.
Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.
