Level 3 Should Convert Its High-Coupon Debt

Level 3 (LVLT - commentary - Cramer's Take) should -- and if I know the company as well as I think I do, will -- issue converts or common to replace some of the higher-coupon debt it has stuck with.

This will put some short-term pressure on the stock but help the business, which is just fine with everyone except those playing it for the contests going on all over the place.

I have liked LVLT ever since they made two quarters in a row, which is a big deal. The first of the quarters didn't matter, because the company was adamant not to read into it. The second good quarter, though, was noticeable for its silence. That was the tipoff to me that there could be an equity or convert financing lurking.

It is terrific that the company sold its advertising distribution business for $129 million, especially because, well, we didn't even know the division was worth anything.

I have been touting -- and I admit that's the right verb -- LVLT as the ultimate Obama play, because one of his most important issues is 100% broadband adoption for all because it is an incredibly important equalizer for all Americans. This is the Obama "no child left behind" program, but it might as well be called the "Level 3 profitability program." LVLT has the surplus bandwidth. That's the raison d'être of the company, as it was a real bad bet -- for some time -- that we would eventually run through surplus bandwidth.

Jim Crowe is a fantastic manager, as anyone who has followed him through the years would know. But he has a huge amount of high-coupon debt that would be terrific to retire by issuing either lower-coupon converts or 100 million shares. I would do the latter. It is what I wanted Charter (CHTR - commentary - Cramer's Take) to do when it got to $4, but those bozos never listened to me.

Crowe knows he has to reduce debt. He knows that the earnings dilution when you issue stock is well offset by the decline in debt itself.

Just be careful of this if you are using this stock in the game. It must be too tempting to management not to use this amazing run to refinance.

Random musings: Speaking of game stocks, was I the only one who heard Kevin Martin say that the FCC would soon vote on Sirius (SIRI - commentary - Cramer's Take) and XM (XMSR - commentary - Cramer's Take). I think you buy Sirius, because I believe that it wins either way. If it wins, you get a double on the merger. It wins because I think XM goes under before Sirius. Not much of a recommendation, but a better risk/reward with Sirius for certain.

At the time of publication, Cramer had no positions in the stocks mentioned.

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