Unisys's $700M Gamble: High-Yield Risk or Turnaround Catalyst?

Let's cut to the chase: Unisys is pulling a Hail Mary here. The $700 million Senior Secured Notes due 2031 are a bold move—part desperation, part strategy. This isn't just about debt restructuring; it's a high-stakes bet to stabilize a balance sheet under siege.

First, the 375 basis-point rate hike to 10.625% screams trouble. Who in their right mind would agree to a loan costing over 10% unless they were drowning? This isn't a refinancing—it's a rescue. Investors are pricing in significant risk here. But here's the flip side: Unisys is buying time. By swapping out $485 million in cheaper debt (6.875% notes due 2027) for this new high-yield load, they're buying a reprieve from restrictive covenants and collateral demands. The move frees up operational flexibility—critical for a company whose pension deficit and postretirement liabilities are eating into cash flow.

Now, let's talk collateral expansion. The new notes are secured by substantially all of Unisys's assets, including 100% of first-tier subsidiary stock. That's a stark contrast to the old notes, whose collateral is now being stripped away. This isn't just a swap—it's a restructuring where new creditors are fronting the cash to fund old obligations while claiming first dibs on the company's lifeblood. Existing bondholders? They're getting stiffed. The early tender offer's $30 premium for quick sellers underscores how badly Unisys wants to clear the decks.

And then there's the pension deficit. The company explicitly states proceeds will address this black hole, which has been a chronic cash drain. That's a good sign—it means Unisys is tackling a ticking time bomb. But here's the rub: paying down pensions with ultra-high-cost debt is like putting out a fire with gasoline. The interest alone on $700 million at 10.625% is $74 million annually—cash that could otherwise be reinvested in the business.

(Note: If UIS stock were available, this would show a volatile trajectory, likely pressured by debt concerns but with occasional pops on restructuring news.)

So where's the opportunity? For bond investors, the 10.625% coupon is a siren song. If Unisys can execute on its turnaround—streamlining operations, winning new IT contracts, or even selling non-core assets—the notes could become a steal once the market digests the risks. But tread carefully: default risks are real. The company's reliance on its ABL facility (which still holds first-lien status) means the new notes are second in line if things go south.

Meanwhile, the stock? It's a gamble. If Unisys's pension and debt issues are truly being addressed, a bottom could form. But the equity is a distant second to the bonds here.

Action Alert: This is a high-risk, high-reward scenario. The bonds are for aggressive investors with a multi-year horizon—those who believe Unisys can turn around its core IT services business. The stock? Only for the masochistic. The key is to watch cash flow: if Unisys can generate enough to cover that 10.625% tab and invest in growth, this could be a comeback story. If not, it's a trap.

In the end, Unisys is playing with fire. But sometimes, you've got to burn the house down to rebuild it.

Investment Takeaway:
- Bonds: Buy the new Senior Secured Notes for the yield, but brace for volatility.
- Stock: Avoid unless you're a contrarian with nerves of steel.
- Watch for: Cash flow improvements post-restructuring and progress on pension obligations.

This isn't for the faint of heart. But in a world of low yields, 10.625% isn't nothing—if you can stomach the risk.