Good morning, ladies and gentlemen, and welcome to the Consolidated Communications Holdings Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time.

[Operator Instructions] As a reminder, this conference is being recorded.I would now like to turn the conference over to your host, Ms. Jennifer Spaude. Please go ahead..

Thank you, and good morning, everyone. We appreciate you joining today for Consolidated Communications' third quarter 2019 earnings call. On the call with me today are Bob Udell, our President and Chief Executive Officer; and Steve Childers, our Chief Financial Officer. After our prepared remarks, we will open the call for questions.

Please review the Safe Harbor provisions in our press release and in our SEC filings.Today's discussions include statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties.

A discussion of factors that may affect future results is contained in Consolidated's filings with the SEC, which are available on our website. Today's discussion will include certain non-GAAP financial measures. Our earnings release has been posted on the Investor Relations section of our website at consolidated.com.

It includes reconciliations of these measures to their nearest GAAP equivalent.I will now turn the call over to Bob Udell..

Good morning, everyone and thank you for joining us today. Thank you, Jennifer. Jennifer Spaude is back as our Investor Relations lead.

Lisa Hood is taking on a new opportunity and we wish her the very best in her new adventure.We are executing on our capital allocation plan, which is focused on deleveraging and creating long-term value for our shareholders. This plan is about reducing debt, creating additional financial flexibility and improving our future cost of capital.

In the third quarter, we reduced our debt by $26 million. We're making progress strengthening our balance sheet.Now let me update you on the business and the progress we're making, starting with consumer. I’m pleased with the performance in this channel. Broadband revenue grew more than 2% year-over-year and quarter-over-quarter.

Total consumer revenue increased almost $2 million from the prior quarter with strong broadband revenue growth.Our consumer results continue to improve as we lead with broadband services and drive ARPU increases with bandwidth upgrades.

In the last two years, we've increased available speeds to more than 750,000 connections, primarily rural customer locations. Increasing speeds is the key driver for our growth.In the third quarter, we upgraded speeds to 1 gig for 62,000 end-user locations in northern New England.

Capacity upgrades required for carrier growth enabled these speed upgrades for consumer and commercial customers.

A good example of our three customer channels leveraging our common fiber assets.Last week, we began turning up subscribers in Chesterfield, New Hampshire, in a first of its kind partnership, leveraging municipal bonds to fund construction of a fiber to the home network. This is a great example of an effective public-private partnership.

We’ve five additional opportunities in the pipeline totaling nearly 10,000 passings, all of which would begin construction in 2020.

This is a unique model that is perfectly suited to leverage our capabilities as an incumbent provider in world markets.Through a combination of efforts including public-private partnerships, innovative fixed wireless, new technologies and targeted investments, we're optimistic on the consumer broadband business.

Last quarter we announced the launch of CCiTV, a cloud based video service in Portland, Maine.It is very early in the launch phase, but so far nearly half of the subscribers are adding a data service and more than 70,000 -- I’m sorry, 70% of the customers are bringing their own devices.

This metric will evolve over time and reinforce the broadband lift and low capacity -- low capital intensity we expect with this product.We plan to launch CCiTV and a triple play offering in New Hampshire and Vermont by the end of the year. We're very pleased with the progress made this year in our consumer channel.

While we anticipate New England seasonal suspends in the fourth quarter, we are positioned to enter 2020 with a solid run rate.Within our commercial and carrier channels, we experience both year-over-year and quarter-over-quarter growth in data and transport revenues.

The growth rate was just over 1% year-over-year and we're on track to realize nearly 2% increase in data and transport in full-year 2019.In our commercial channel, we're focused on driving a better customer experience through our solutions based sales approach and expand portfolio -- expanded portfolio of advanced services.

We've had success upgrading multisite customers to consolidated competitive SD-WAN solutions. This is a natural evolution building on our customers trust in us as a reliable, high-performance WAN provider.A recent win involved a seven site customer who added SD-WAN bringing increased diversity and bandwidth through their network.

The majority of their sites are on our fiber footprint with SD-WAN our customers get even more uptime, speed and visibility into the network applications and their critical business traffic is prioritized over other network usage.We're also gaining momentum within our small business or SMB team, after adding additional sales resources to support acquisition and retention efforts.

This past quarter, we launched Microsoft productivity suite as well as easy-to-use website and email management services. These services provide everything our customers need to stay connected and be productive wherever they are and whatever device they choose to use.

They are a nice complement to our BusinessOne bundle.Our carrier channel has achieved strong consistent results in 2019. Total tower connections under contract increased by a 129 or 4% compared to the third quarter of 2018, reaching more than 3,800 total tower connections.

Revenue within our carrier channel continues to be a solid mix of wireline and wireless transport services driven by Ethernet and dedicated Internet.Our team is doing an excellent job of negotiating long-term carrier contracts that continue to drive Ethernet sales and offset TDM special access services.

Our network investments made for carrier services are also benefiting consumer and commercial customers.Now turning our attention to cost savings opportunities, operating expenses were down more than $20 million in third quarter year-over-year. We continue to identify and implement initiatives to transform the business and stabilize free cash flow.

As an example of cost savings initiative -- an example of cost savings -- a cost savings initiative is the continued automation and consolidation of our customer care functions.We've developed robust self-serve options and portals for customers who are choosing to do business with us via these tools.

These changes are helping us streamline and align the customer experience and realize cost savings.I will now turn the call over to Steve, who will provide more details on our financial results for the third quarter as well as an update on our full-year 2019 guidance.

Steve?.

Thanks, Bob. Good morning, everyone. We are pleased to achieve another quarter of stable and consistent adjusted EBITDA and revenue. First, starting with our consolidated performance.

Operating revenue for the third quarter totaled $333.3 million and generated adjusted EBITDA of $131 million, which is essentially flat with the second quarter.Now discuss each of our customer channels, starting with consumer. For the quarter, voice, video and data revenue all improved in a sequential basis.

Year-over-year, total consumer was down $5 million or 3.7%, voice revenue was down $5.3 million and video consistent with our strategy to transition away from low-margin IPTV linear video to more broadband centric services declined $1.3 million.However, consumer broadband revenue did grow $1.6 million or 2.5% in the third quarter.

Data ARPU is the key catalyst as we balance rate increases with organic ARPU improvements in all of our markets. We continue to realize positive momentum by leading with data, specifically in our newly updated areas where we're now marketing to more than 750,000 locations.

And as Bob mentioned, we are excited about the partnership opportunities in new technologies to continue to upgrade and expand broadband services.Now turning to our commercial and carrier channel. Revenue for the quarter was $147.2 million, down 2.9%. Data and transport revenue grew $1.3 million to $88.8 million for the year -- for the quarter.

Voice services revenue declined $3.5 million or 7% driven by legacy declines in traditional access lines and associated revenue services. Other revenue .declined $2.1 million.Network access revenues declined $3.9 million or approximately 10%.

Subsidy revenues were down $1.2 million, driven by the impact of the final CAF-II step-down in transitional support that occurred in August 2018.

We now expect our subsidy revenue run rate to be approximately $18 million per quarter.We do plan to be active participants in the FCC's Rural Digital Opportunity Fund, which will urban speeds to rural America. We are confident our fiber rich network will give us competitive advantage over those who don't have infrastructure in these rural markets.

We will evaluate the funding within our service area as well as edge out locations where we have fiber network.

We are excited about the potential opportunities for Consolidated as the objectives of this fund align with our commitment to expand and improve rural broadband.Looking at operating expenses, exclusive depreciation and amortization were $216.7 million, which improved 9% or down $21.5 million from the third quarter of last year.

Cost of services and products declined $6.3 million, driven by network cost optimization and lower salaries and benefits as a result of reductions associated with the realized FairPoint synergies and ongoing cost savings initiatives.SG&A costs were reduced $15.2 million in the recent quarter, primarily due to integration and restructuring charges in the third quarter last year combined with run rate operational synergies and ongoing cost structure efficiencies.

Net interest expense for the quarter was $34.3 million compared to $33.5 million for the same period last year. Our weighted average cost of debt was approximately 5.7% in September 30.Cash distributions from the company's wireless partnerships were $10.9 million in the third quarter compared to $8.1 million for the same quarter last year.

Adjusted net income per share was $0.06 compared to a net loss of $0.09 per share a year-ago. The improvement reflects $16.1 million decline in depreciation expense as well as ongoing focus on cost structure and operating efficiencies.We’ve invested $64.6 million in capital expenditures during the third quarter.

The higher CapEx level was driven by consumer and broadband growth, seasonal construction and additional hurricane restoration costs, which we expect to be completed in the fourth quarter.Combining our consistent EBITDA performance and the cash impact of insurance recovery proceeds, the higher capital expenditures will not impact our ability to achieve our stated leverage goals.

Total liquidity including cash on hand and availability under the revolver was approximately $71 million.Our net leverage ratio was 4.39x at the end of the third quarter. We are executing our new capital allocation policy, which is focused on continuing to demonstrate progress on deleveraging, while improving the balance sheet.

Total debt declined by $26 million during the quarter, boosted by the retirement of $23.1 million in our senior unsecured notes at par value.The third quarter was our first full quarter without the dividend payment.

Consistent with Q3, we will repurpose the Q4 dividend savings to pay down debt billion we continue to prioritize being opportunistic with open market purchases of our bonds.

With this strategy, we are confident, we will improve our capital strategy as we -- capital structure as we accelerate deleveraging toward our goal of achieving total net leverage of less than 4x, no later than mid 2021 and in advance of our refinancing of our unsecured debt.We are intensely focused on achieving our full-year financial guidance.

Today, we are affirming guidance for adjusted EBITDA, which is expected to be in the range of $520 million to $525 million to -- $525 million.

Cash interest costs in the range of $130 million to $135 million and cash income taxes are expected to be less than $3 million.We are updating our capital expenditure guidance, which is now expected to be in the range of $220 million to $225 million to account for the full-year projected capital expenditures of $11.8 million associated with the hurricane restoration as well as additional success based CapEx.With that, I will now turn the call back over to Bob for closing remarks..

Thank you, Steve. In closing, this is our first completed quarter since implementing our capital allocation plan and we're on track with our target debt reduction. We also have delivered another stable quarter of EBITDA and revenue results. Expenses are reduced and we’re focused on continued cost-saving -- cost savings initiatives.

We're strengthening our balance sheet and I'm confident in our business and our ability to create long-term value.With that, we will now take questions.

Operator?.

[Operator Instructions] Your first question comes from the line of Jon Charbonneau with Cowen & Company. Your line is open..

Great. Thanks for taking the questions. For data and transport revenue, do you still expect to hit the 2% type growth for the year? Because that would imply a notable uptick in the fourth quarter. And then longer-term, is the 2% type growth still how we should be thinking about that business? Thank you..

Thanks Jon for the question. We are optimistic on the fourth quarter. We’ve got some very strong carrier power pipeline that we accelerated into the third quarter, some of which we accelerated in the third quarter. And we also have some very large sales in our gold, which is and platinum categories, which are above 2,000 per month, that are in queue.

So it's going to -- it could be a matter of closing those deals and -- all the deals are closed, but getting them installed. And we also saw some very nice growth in our core products, Metro E 4% increase -- over 4% increase year-over-year and hosted voice is up.

So we are still fairly optimistic about the installs that we’ve accelerated into third quarter where we could get the construction work done. And the NRCs and the monthly recurring billing that comes with that. But I think it will be slightly less than 2%..

And then just longer-term -- and then longer-term, is the 2% growth type of -- is that how we should be thinking about that business going forward?.

Hey, Jon, this is Steve. Absolutely. I think for -- internally our objective is 2%, and it should be the minimum going forward. That’s where we’re invest -- make our fiber investments, that’s where we’re basing our sales resources at.

So we’ve some work to do, but I mean that needs to be kind of the threshold going forward at the bottom of the base there..

Thank you..

Your next question comes from the line of Michael Rollins with Citi. Your line is open..

Hi. Good morning. This is Adam Ilkowitz on for Mike. Two questions, if I could. One on the consumer broadband revenue, can you sort of disaggregate price versus customers? Are you net gaining DSL customers, given the expansion of the broadband footprint, if you could help us understand that.

And then on the SG&A, sequentially it came down fairly significantly little bit more than 10%. Perhaps can you mention if there's anything in the SG&A expense line this quarter that was a benefit, or that may reverse in future quarters? Thank you..

Yes, I will take the first part of that, Adam, and Steve will take the second. Really there's two components as you said on the consumer revenue.

We had the legacy consolidated markets in aggregate continued to perform quite well, and the speed upgrades there have really helped lead both price, ARPU increases as well as continued additions of subscribers. And so FairPoint markets, legacy FairPoint markets are where we had a significant speed upgrade opportunity.

And so when you look across the aggregate, it's really 50-50 and with the price increase opportunity coming from speed upgrades as well as those speed upgrades enabling us to grow penetration..

Hey, Adam, this is Steve. On the -- I think your question was on sequentially on SG&A cost. The way I will look at that is Q3 compared to even second quarter of this year, third quarter of last year, we locked the window for adding FairPoint integration cost back into June 30.

So we were -- on a sequential basis, we kind of accelerated some things into second quarter. So that's one thing we should see as less sort of integration and severance, although we still incurred some severance expense in Q3.

You are also seeing the benefit of actions taking as we continue to consolidate work groups, particularly on the customer service side. And then, we also had some tax refunds in the -- in Q3 based on some things we have going on at the state level. So we're going to continue to focus on that going forward..

Thanks.

And maybe, Steve, can you quantify perhaps the level of the benefit from the state tax refunds? I mean, I understand the integration expenses, which we usually try to remove the impact of?.

I don’t have that number specifically, but I would say it's probably $0.5 million to maybe as much of a -- maybe as much as $800,000..

Okay. Thank you..

And Adam to the ongoing refinement opportunity within the business, this is something that has been typical of every acquisition we’ve done and it's even with the size of the FairPoint integration even more of an opportunity, we are seeing constant business process refinement, especially across the service delivery channels.

And so, as we continue to find automation benefits, those are expediting installs, shortening booked to billed revenue cycles, and allowing us to consolidate or centralize more work functions and get the benefits of even virtually linked centers to cover more flexibility in scheduling and time zones.

So it's a constant refinement process, primarily driven by looking at each customer group and the continued refinement in automation of the service delivery efforts..

Thank you very much..

Your next question comes from the line of Mike McCormack with Guggenheim. Your line is open..

Hey, guys. Thanks. Maybe just a quick comment on MPLS exposure, and then obviously on the SD-WAN side, which is probably replacing it, what you’re seeing from a pricing perspective? And I guess on the consumer business, what were you guys seeing out there as far as the data connections go with respect to seasonality? Thanks..

Okay. Thanks for the question. Let's start as you did with the commercial side. For that the academic view of SD-WAN, its logical to conclude that it replaces MPLS over time. But that’s going to be an incredibly long lifecycle. We are actually seeing SD-WAN as a 10% ARPU when it comes to commercial customer growth opportunity for us.

And the multi site example I gave in our prepared remarks is a perfect case study. We are seeing many of our multi location customers add SD-WAN in their remote site, some of which are in our footprints and many are to get that connectivity and control of their critical applications extended in a way that they couldn't previously.

And so it's an enhancement for us right now. And it's using more transport paths and allowing us to extend Metro Ethernet even at smaller bandwidth levels, then what customers may have thought in a dedicated basis previously. So to date we haven’t seen that as any inclination of a revenue write-down. So I think that addresses your SD-WAN.

From a pricing perspective, I don't see SD-WAN as a price compression opportunity. It's exactly been an enhancement as I mentioned on an ARPU basis, allowing us to link more sites together for our multi location customers. Now moving to the consumer, we do expect some seasonality as we’ve typically seen in northern New England.

Although we have a -- an automated suspend process now that roughly 30% of the customers who have typically -- we’ve typically seen in volume, begin to suspend in the heaviest month of October are using that process that allows them to suspend for a small fee versus disconnecting the service.

And it takes the discussion out of our call center and puts it in their hands for control when they reinstall it without having to wait in queue for a scheduled install. So it's actually something we anticipate.

And we don’t expect it to be as dramatic maybe as what we’ve seen in the past, but this cycle will be the indicator on how much the automated suspend process has affected that..

Great. Thanks, guys..

Our next question comes from the line of Jennifer Fritzsche with Wells Fargo. Your line is open..

Great. Thank you. Two, if I may. I wanted to ask any updated thoughts on the Rural Development Opportunity Fund or RDOF as I think it's being called, how you're thinking about that? And then secondly, I wanted to see on the competitive -- sorry if you've mentioned this, competitive environment in the old FairPoint territory.

Are you seeing Charter respond in an aggressive way as you roll out your pasture seed offering? Thank you..

Yes, I will take the second part of that first and then come back to RDOF. The proof in terms of competitive response is really in the uptick we've seen in revenue and the success rate we're seeing on installs this quarter and last quarter and the pipeline still looks good. We think we're in the right niche.

We think we have a better service delivery process and we're giving the technicians more tools. We are seeing Charter aggressive as always on pricing, but no specific response because our marketing effort and focus on expansion has been a very surgical neighborhood-by-neighborhood approach and so we can be that targeted.

Charter's typically followed a national pricing approach and we compete with them in many of our markets and see the success we are having right now in northern New England a result of the process improvement and the focus on the upgraded areas and our ability to hit install appointments when we said we were going to be there for our customers.

So I wouldn't say we're seeing anything different in this market than what we've experienced in other markets. Now back to the Rural Digital Opportunity Fund. We are very excited about this. This is what we view to be the next wave of digital and internet revolution to some degree in connecting the rest of America.

So infrastructure in rural markets is something that we're good at and we believe we've got a competitive advantage and we're very active with the FCC and through our national associations in giving input to the auction process.

And so we think it's going to be appropriately sensitive to making sure that not only do end users get access to broadband service and the maximum bandwidth possible with a minimum of 25 and 3, but the weightings also address latency and put us in a best -- in a very good position to extend our fiber networks through fixed wireless or terrestrial means whatever fits the situation best and we've got experience with all those end-user types of technology.

So we are staying close to it watching carefully how the comment period plays out and preparing for a good order in January that outlines the process for the auction..

Great. Thank you..

Your next question comes from the line of Davis Hebert with Wells Fargo. Your line is open..

Good morning, everyone. I have a few questions here. The first two are follow-ups to prior questions.

On the pricing increases, I just wonder is that something that was done in one big price increase across your footprint, or is it more surgical as you suggested as you upgrade speeds and people take higher speeds?.

The price increase is associated with consumer match our philosophy on a region-by-region basis. So I guess surgical is probably close to the right term. We work very hard to only provide pricing increases with something that we deliver back to our customers.

So in this case the dominant reason for price increases across the broadband customers would have been a speed increase either at their wish or matched with a automatic upgrade to an area that we had enabled faster speeds and we move them automatically as a way to retain them with a slight $1.25 $1.50 increase..

Okay. That's helpful. And then on the SG&A, just a follow-up there. The run rate of $70 million I know Steve you said there might be some state tax -- a little bit of lumpiness.

But should we expect that run rate to continue into 2020 on a quarterly basis?.

I think it should be close, Davis. I mean as we said there's probably some onetime items going both ways in there. But again we're looking at continuing to get better efficiencies throughout the markets, particularly in the back office function. So I think that's probably a good number to start with..

Okay. That's helpful. And then on the debt reduction this quarter that was definitely nice to see and it was close to your historical quarterly dividend payout.

So I was just curious is that something we should expect going forward and is the preference to still buy back bonds in the open market or are you open to repurchasing some loans as well?.

Well, so number one, I think the goal is to your point the dividend's probably right around $27 million, $27.5 million a quarter savings. We are targeting kind of having that level of reduction based on the kind of spike in CapEx we had in Q3.

We didn't quite hit that number but that's sort of -- that's where our target is on a quarterly basis and we'll do more if we can. I think that as we're evaluating whether it's open market repurchases for the bonds or term -- or just term debt or paying down the revolver, I think right now we're looking at the highest return best use of cash.

And where the bonds are currently trading I think that's where we would go. But I mean our focus is on maximizing every dollar for accelerating deleveraging if we can. So right now the bias is probably towards the notes, just based on where they're trading, but I totally understand the bank debt's also trading at a discount right now..

Yes, okay. And then the last question you mentioned CapEx a little bit higher on the guidance. I know the form issues may be playing a role there.

Should we expect in 2020 -- I know you haven't given guidance but should we expect maybe a slight rollback in CapEx for next year?.

Yes. If you look this year's guidance puts us in a $20 million CapEx reduction largely with the integration activities and some of the prep for broadband growth core network growth behind us.

And so with half a year still of integration and the storm recovery, which has been over a year cycle it feels like in structure replacement in Florida as a result of Hurricane Michael costing somewhere near $11 million -- a little bit over $11 million actually by the end of this year would expect that not to be reoccurring.

So we definitely expect a step down in CapEx and we will give that guidance in the next call for 2020..

Okay, great. Thanks all..

Your next question comes from the line of Jason Kim with Goldman Sachs. Your line is open..

Great. Thank you. Any updates on noncore asset sales to help your deleveraging goal? And in terms of bond buyback the pace picked up nicely this quarter with the elimination of the dividend. Your revolver balance is up modestly versus second quarter as well to $45 million.

Is the current revolver balance a level that you're comfortable with as you look to direct free cash flow to bond buybacks?.

Okay. Steve will address the bond buyback piece, but I will tell you just to reiterate we are committed to allocating the dividend to leverage reduction. And as Steve mentioned, we expect to continue to do that.

I think the revolver is up slightly as a result of some of the lingering hurricane replacement activity rebuild activity, but we are also seeing insurance proceeds lag that recovery and we're feeling good about that progress.

So, Steve, do you want to talk about the bond repurchase, anything else to add?.

Well, I think the first question was on asset sales so I think we are -- and we've talked about asset sales in the past -- we are continuing to evaluate. We are getting some inquiries on different market -- different opportunities.

We are evaluating those on a kind of a valuation basis what it would mean for leverage what would we do with the proceeds. And I want to be clear we're not doing anything on any kind of a distressed basis. We are looking for valuation to accelerate deleveraging our investment in the business.

Nothing to talk about today, but that is under consideration. I mean to your question and the same one Davis asked we are focused on targeting the dividend savings on a quarterly basis to debt reduction. We -- obviously, we would like to see the revolver be less because we're using that too in the short-term.

We would like to take that to zero if we could, but we are also kind of using that in the short-term to help on some of the bond repurchases.

As Bob said, it's kind of elevated in Q3 because of the timing and the hurricane relative to insurance recoveries but we are going to be very disciplined in how we balance liquidity relative to the opportunity to do open market repurchases..

Thank you..

Your next question comes from the line of Matt Swope with Baird. Your line is open..

Good morning, guys.

Just to continue on that same line, Steve, how much do you expect those insurance proceeds to be?.

So the way to think about that we are -- it's kind of hard -- I'm not sure I'm going to give you a number, but we -- so the way that works on the refund, we would expect even though it's not a direct cap loss from an accounting perspective, we would expect the refunds in total to be close to what the CapEx is.

But to be honest to be very direct about it the refunds are basically -- or the recoveries are basically offsetting expense first and then it goes to offsetting the loss on property that we're having to write off.

So I think in total we are looking at a claim of $10 million to $15 million coming back and I think we've received like $7.5 million through Q3..

Got you. That is helpful.

And on the use of free cash flow are there any covenant limitations on how you apply that? Could you use every dollar other than the term loan required amortizations could you use every dollar to buy back bonds? Does anything restrict that?.

No..

There's no language in the restricted payments basket to prevent us from doing exactly what you said..

That's great.

And then thinking about your wireless partnerships to the question of noncore asset sales are the wireless partnerships something that could be a target for there and are there any restrictions from Verizon or otherwise on who you could sell those wireless partnerships to?.

Well, I'm not so -- we would open to direction on that or feedback, but the way we think about it is they're putting off $35 million or $37 million a year in annualized free cash flow. We have no operating expense going against that. We have no capital requirements. We are limited partners.

Our share our cash flow shares are based on our percentage ownership of the cash flow in each one of those partnerships. So we’ve -- we acquired the properties years ago in a couple of acquisitions so we’ve carryover tax basis from the predecessor company which based on when the investments were made we have a very, very low tax basis in these.

So again the way we think about it if somebody came knocking on our door that would give us a tax-adjusted multiple for it we would certainly consider it. But in the short term we're not really seeing that -- we don't expect that to happen.

So again we're going to leverage the $35 million to $37 million a year on operating the business investing in the fiber network or paying down debt..

And just to stay hypothetical with that concept or really any asset sale concept can you use -- another covenant question -- can you use the proceeds for -- whether it be that asset or a different asset -- could you use the proceeds to retire the bonds or would that have to be offered to the loans first?.

That's a great question and one I'm probably -- probably shouldn't really -- I think there could be -- I think I probably need to talk to our administrative agent on the credit agreement.

But there are rules -- like there's an asset sale basked under the credit agreement that you have -- if you’re inside the basked you have more optionality than if you're above the basket limitation on asset sales. So I mean I think it kind of depends.

But again to your point if -- we prefer it when there -- even though we're focused on deleveraging we like the optionality of being able to invest in the business if we can.

But if we're paying down bank debt we're paying down bonds they're both trading at discount they're both going to help us on deleveraging so if we raise some capital through asset sales it's a good thing no matter how you look at it..

That’s great. Thanks, Steve..

Your next question comes from the line of Aaron [indiscernible] with Credit Suisse. Your line is open..

Yes. Hi. Thanks for taking my questions. Most have been asked and answered.

Quickly on your term loans -- sort of term loans itself, I just wanted to see if you had started to have conversations with banks in terms of potentially refinancing that and do you have any sort of potential to do some creative structures around the Verizon sort of partnership that could theoretically help you get a better rate on a refinancing?.

I think there's always optionality and always strategy, but nothing we're ready to talk about today..

Got it. Fair enough. I will follow-up offline. Thank you. Thank you..

Your next question comes from the line of [indiscernible] with UBS. Your line is open..

Hey, guys, I just want to follow-up on the opportunity fund.

Are there -- is there a chance that you have certain areas that you would not be looking for funds and that you might forego providing service to those areas and use that as a possible way of saving costs and not having to provide in high cost areas?.

Yes. I think there's always that chance. I mean right now we're going into it with the interest in understanding of what we think the minimum break point is for return and if the option were to go beneath that then we want to be in a position to walk away from all the costs associated with it -- with that particularly census block.

So there's always that chance and if we do walk away it's going to be because we believe we can shake the cost and the carrier of last resort obligations that come with that both from a capital avoidance perspective and from an operating expense perspective.

So it does present that opportunity but we're starting out with the intention of having a threshold for each census block in which we have interest or we currently operate..

Got it. Thank you..

Your last question comes from the line of Jennifer Fritzsche with Wells Fargo. Your line is open..

Great. Thank you. Sorry I just wanted to revisit fiber to the tower. There's been some, I will call it chitchat that T-Mobile has been slowing in some markets more in the traditional tower space. I'm wondering if you're seeing that.

Has there been any sort of pregnant pause from either Sprint or T-Mobile or both until we get some resolution on their merger?.

I can't say that we've noticed that. And I have to be careful because of the NDAs we have with all of our carriers we are going to be respectful of. What I would say is we are seeing consistent higher demand than what we saw a year-ago and so the backlog is good.

It's coming from all four carriers a little bit less maybe from Sprint at this point in time, but that's not atypical based on the coverage that we already have for Sprint with our existing run rates and existing markets. So I can't say definitively if there's anything unique or obvious with regards to T-Mobile..

And then, Bob, if I could just press a little on Verizon. Verizon has kind of had a model also of working with regional partners to build more fiber in certain areas. They're building fiber themselves in 60 markets. Are you seeing them come into your markets more as a partnership relationship or not, I guess is how I would say it..

We are seeing those -- some of those opportunities. Those are at least in our markets more speculative at this stage versus -- and we see them as opportunities versus as -- versus being very aggressive build outs. It seems those interests that Verizon has had is in their noncore NFL larger markets.

And so where we have facilities on the fringe of those markets we tend to benefit. But we are not an NFL market-oriented business. We are predominantly in suburban and rural and so I think those opportunities come to us later and I wouldn't see this being any different in terms of the way that strategy typically plays out..

Perfect. Thank you very much..

There are no further questions at this time. I will now turn the call back over to Mr. Bob Udell..

Well, again, we thank you for your interest in our company for the questions and your continued support. We look forward to chatting with you on the next earnings call. Have a great day..

This concludes today’s teleconference. You may now disconnect..