8-K: UScellular Secures $1.28 Billion Amended Credit Facility, Paving Way for Special Dividend and Strategic Flexibility

United States Cellular Corporation has amended and restated its credit agreement, securing a new $1.28 billion facility, including an $800 million Term Loan A-3, to fund a special dividend related to the T-Mobile asset disposition and for general corporate purposes.

Summary

• United States Cellular Corporation (UScellular) entered into a Fourth Amended and Restated Credit Agreement on June 25, 2025, amending and restating its prior $500 million Third Amended and Restated Credit Agreement.
• The new agreement continues the existing Term Loan A-1 facility in the amount of $200 million and the Term Loan A-2 facility in the amount of $300 million.
• It also provides UScellular with a commitment to fund Term Loan A-3 loans in an aggregate amount not to exceed $800 million.
• Funding of the Term Loan A-3 facility is conditional upon the full payoff of the existing Term Loan A-1 and A-2 amounts and the consummation of transactions outlined in the Securities Purchase Agreement with T-Mobile US, Inc., dated May 24, 2024.
• Proceeds from the Term Loan A-3 facility can be used for general corporate purposes, to cover fees and expenses related to the facility, and to fund all or a portion of a special dividend linked to the T-Mobile asset disposition.
• Loans under the agreement bear interest at UScellular's option, either at a secured overnight financing rate (SOFR) or an alternative base rate, plus an applicable margin.
• The Term Loan A-1 Facility is due in quarterly installments of $750,000, maturing on July 30, 2028.
• The Term Loan A-2 Facility is due in quarterly installments at a rate of 0.25% of the outstanding principal amount through September 30, 2026, and 0.625% thereafter, maturing on July 30, 2031.
• The Term Loan A-3 Facility is due in quarterly installments at a rate of 0% through June 30, 2026, 0.625% from September 30, 2026, through June 30, 2029, and 1.25% thereafter, maturing on June 25, 2030.
• The credit agreement is unsecured, and certain wholly-owned subsidiaries serve as guarantors.

Sentiment

Score: 7

Explanation: The agreement secures significant financing and provides flexibility for strategic initiatives like a special dividend and general corporate purposes, indicating a stable financial position and clear strategic direction, despite the conditions for the A-3 loan.

Positives

• Secured a new $1.2845 billion credit facility, providing substantial financial capacity and extending debt maturities.
• The new $800 million Term Loan A-3 commitment offers significant liquidity for strategic initiatives, including a special dividend.
• The ability to fund a special dividend indicates potential for direct return of capital to shareholders following the T-Mobile asset disposition.
• The credit agreement is unsecured, which can offer greater financial flexibility for the borrower compared to secured debt.

Negatives

• The funding of the $800 million Term Loan A-3 is contingent on two specific conditions: the full payoff of existing term loans and the consummation of the T-Mobile asset disposition.
• The agreement includes financial covenants, such as the Consolidated Interest Coverage Ratio and Consolidated Leverage Ratio, which impose limits on the company's financial operations.
• The Consolidated Leverage Ratio covenant tightens from 3.75 to 1.00 to 3.50 to 1.00 after the T-Mobile disposition, potentially limiting future borrowing capacity or requiring deleveraging.

Risks

• Breach of financial covenants: The Consolidated Interest Coverage Ratio must not be less than 3.00 to 1.00, and the Consolidated Leverage Ratio must not exceed 3.75 to 1.00 (pre-T-Mobile disposition) or 3.50 to 1.00 (post-T-Mobile disposition). Failure to meet these could trigger an Event of Default.
• Change of Control: A defined Change of Control event would constitute a default, enabling lenders and the Administrative Agent to demand immediate repayment of all outstanding borrowings.
• Parent Term Loan Facility Repayment: Failure to repay all indebtedness and other obligations under the Parent Term Loan Facility within five business days of the Parent Company receiving the Special Dividend constitutes an Event of Default.
• Compliance with Laws: Non-compliance with Anti-Corruption Laws, Anti-Terrorism Laws, or Sanctions could lead to violations and potential liabilities.
• FCC Approval: Any action that would constitute a change in control requiring prior FCC approval cannot be taken without obtaining such approval, potentially limiting the Administrative Agent's ability to exercise full rights and benefits under the agreement.

Future Outlook

UScellular plans to utilize the Term Loan A-3 proceeds to fund a special dividend, which is contingent on the consummation of the T-Mobile asset disposition. The company also intends to use these funds for general corporate purposes, including working capital, capital expenditures, and non-hostile acquisitions, indicating a focus on ongoing operations and potential growth opportunities.

Management Comments

• UScellular may borrow the Term Loan A-3 Facility for general corporate purposes, to pay fees and expenses in connection with the Term Loan A-3 facility and to fund all or any portion of a special dividend related to the closing of the transactions contemplated in the Securities Purchase Agreement.

Industry Context

This credit agreement, particularly the provision for a special dividend tied to the T-Mobile asset disposition, reflects a broader trend in the telecommunications industry where companies monetize non-core assets, such as spectrum licenses or tower assets, to optimize their balance sheets, return capital to shareholders, or fund new strategic initiatives. The mention of other Permitted Spectrum Dispositions (Verizon, AT&T, Nex-Tech Wireless, Nsight Spectrum) further underscores UScellular's active participation in asset portfolio optimization within the competitive wireless sector.

Management Changes

Corporate Governance

Related Party Transactions

• The Fourth Amended and Restated Credit Agreement involves CoBank, ACB, as Administrative Agent and a Lender, and other lenders, some of whom may have existing relationships with UScellular, Telephone and Data Systems, Inc. (TDS), and their subsidiaries, including serving as lenders under other TDS and/or UScellular credit agreements.
• The agreement references the 'Parent Credit Agreement' and 'Parent Term Loan Facility,' indicating ongoing financial interdependencies and relationships with the parent company, TDS.
• The Term Loan A-3 facility is specifically designed to fund a 'Special Dividend' related to the T-Mobile disposition, which would directly benefit TDS as the holder of 83% of UScellular's outstanding equity.
• The Reaffirmation Agreement confirms the subordination of certain intercompany indebtedness between TDS (as a Subordinated Creditor) and UScellular (as a Debtor) to the new Senior Credit Agreement.

Stakeholder Impact

• Shareholders: Potential for a special dividend, indicating a return of capital, which could be positive. Changes in board composition may influence governance and strategic direction.
• Lenders: New credit terms, extended maturities, and specific financial covenants provide a clear framework for their investment. CoBank continues its central role as Administrative Agent.
• Corporate Executives/Management: The new financial framework provides flexibility for strategic operations and capital allocation. Management changes on the board reflect evolving leadership structures.
• Regulatory Bodies (FCC): The agreement explicitly acknowledges the need for FCC approval for any actions that would constitute a change in control, highlighting regulatory compliance considerations.

Next Steps

• UScellular must fully pay off the Existing Term Loan Amount (Term Loan A-1 and A-2) prior to borrowing any of the Term Loan A-3 Facility.
• The transactions contemplated in the Securities Purchase Agreement with T-Mobile US, Inc. must be consummated for the Term Loan A-3 facility to be drawn.
• The company will continue to comply with the updated financial covenants, including maintaining a Consolidated Interest Coverage Ratio of at least 3.00 to 1.00 and a Consolidated Leverage Ratio not exceeding 3.75 to 1.00 (pre-T-Mobile disposition) or 3.50 to 1.00 (post-T-Mobile disposition).
• A special dividend related to the T-Mobile disposition may be funded using proceeds from the Term Loan A-3 facility.

Key Dates

Keywords

Credit Agreement, Term Loan, UScellular, CoBank, Financial Covenants, Leverage Ratio, Interest Coverage Ratio, Special Dividend, T-Mobile Disposition, Corporate Finance, Debt Financing, SEC 8-K, Telecommunications, Wireless Spectrum