Shares of the iShares U.S. Telecommunications ETF (NYSEArca: IYZ) are up 4.4% Tuesday on volume that is already close to quadruple the daily average after Windstream Holdings (NasdaqGS: WIN) said it will spin-off its telecom network business into a publicly traded real estate investment trust (REIT).
“The tax-free spinoff will enable Windstream to realize significant financial flexibility by lowering debt by approximately $3.2 billion and increasing free cash flow to accelerate broadband investments, transition faster to an IP network and pursue additional growth opportunities to better serve customers,” said Arkansas-based Windstream in a statement.
That news is good enough to have the $578.7 million IYZ sitting as the best non-leveraged ETF to this point in Tuesday’s session. Windstream is IYZ’s seventh-largest holding at a weight of 4.8%. Earlier Tuesday, IYZ traded above $32, a level it has not closed above since October 2007. [Telecom ETFs Stand Out as Defensive Plays]
IYZ’s primary rival, the Vanguard Telecommunication Services ETF (NYSEArca: VOX), jumped 3.7% to a new lifetime high. VOX had a 2.7% weight to Windstream at the June, making the stock the ETF’s ninth-largest holding, according to Vanguard data.
Both IYZ and VOX allocate significant portions of their respective weights to Dow components AT&T (NYSE: T) and Verizon (NYSE: VZ). Those stocks combine for over 26% of IYZ and 44% of VOX.
“Windstream anticipates that the REIT will raise approximately $3.5 billion in new debt, which will be used to repay existing Windstream debt to effect the transaction. Windstream expects to retire approximately $3.2 billion of debt as part of the transaction, resulting in the company deleveraging to 3.3 times debt to adjusted operating income before depreciation and amortization immediately at closing. The company’s enhanced leverage profile and improved discretionary free cash flow will enable Windstream to invest more capital in strategic initiatives, better positioning Windstream for long-term growth,” said Windstream in the statement.
The Fidelity MSCI Telecommunication Services Index ETF (NYSEArca: FCOM), the newest member of the telecom ETF group, is higher by 3.5%. Windstream is that ETF’s eighth-largest holding with a weight of 2.83%.
FCOM debuted last October as part of Fidelity’s suite of 10 sector ETFs. The fund, which entered Tuesday with a 6.6% gain since its debut, had $65.6 million in assets under management at the end of June. [Fidelity ETFs Offer to Impressive Start]
iShares U.S. Telecommunications ETF
