March 17, 2020
Frontier Communications, the provider of telecom services in 29 states, will defer making interest payments as it continues discussions with creditors regarding its $17.5 billion debt load.
Frontier has elected to skip making the interest payments due this week on certain senior unsecured notes and enter a 60-day grace period as it continues work on financial restructuring. According to a Bloomberg report, Frontier is preparing to file for chapter 11 bankruptcy with a plan that cuts its debt and hands control of the company to existing creditors.
“We remain actively engaged in constructive discussions with our bondholders as the company continues to evaluate its capital structure with an eye to reducing debt and interest expense,” Frontier said in a statement. “As part of this process, Frontier has made the decision to take advantage of the 60-day grace period allowed under the indenture to facilitate ongoing discussions as we work to reach a comprehensive resolution. Importantly, we continue to provide quality service to our customers without interruption and work with our business partners as usual.”
Frontier wouldn’t comment further on its plans.
Omdia’s Brian Washburn
Brian Washburn, an analyst with Omdia, said in hindsight, “we can speculate that Frontier likely overextended itself when it acquired the former GTE territories from Verizon.”
“Frontier appears to be doing well enough operationally, providing services and drawing revenues from a landline revenue base; the business is declining, but at a slow and stable rate,” he said. “The problem is not operations, but in servicing more than $16 billion net debt on a slowly declining revenue base. The company could probably continue to stave off the inevitable by selling off more of its operations and by refinancing to lower interest rates. But at some point, the business will not be able to carry this debt load. In this way, if Frontier were to file chapter 11, it would be fairly conventional, which would renegotiate debt to a long-term sustainable level.”
But chapter 11 is not the only option, Washburn said. The alternative is that Frontier skipping the interest payments lays down a bargaining timetable for key creditors to negotiate a different outcome, he said.
“It’s possible key creditors might come to an agreement that avoids a bankruptcy filing, such as a debt-for-equity swap,” he said. “So while I wouldn’t place bets, the door is still open for a different outcome.”
In the meantime, WaveDivision Capital in partnership with Searchlight Capital Partners is acquiring Frontier’s operations and assets in Washington, Oregon, Idaho and Montana for $1.35 billion in a deal that’s expected to close this spring. Once completed, Frontier will operate in 25 states.
When the acquisition is complete, the new company will be called Ziply Fiber and will include 270,000 residential and 25,000 commercial internet subscribers.
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