Frontier Bankruptcy Likely Imminent

Frontier Communications, the provider of telecom services in 29 states, has outlined its restructuring plan that includes filing for chapter 11 bankruptcy later this month, cutting its debt by $11 billion and swapping all unsecured notes for equity.

However, the COVID-19 pandemic could complicate the process, said Brian Washburn, an analyst with Omdia.

According to its latest filing with the U.S. Securities and Exchange Commission, Frontier is talking with creditors with respect to potential deleveraging or restructuring transactions which may include the filing of chapter 11 cases. The company has entered into confidentiality agreements with its creditors.

Last month, the company said it will defer making interest payments as it continues discussions with creditors regarding its $17.5 billion debt load.

The restructuring plan includes transforming Frontier from a provider of legacy telecom services over a primarily copper-based network to a next-generation broadband service provider with long-lived, fiber-based infrastructure.

Frontier‘s board has authorized the company to begin negotiations with creditors with respect to a comprehensive restructuring transaction.

Omdia’s Brian Washburn

“Although the company continues to be open to all discussions with the unsecured noteholders regarding a potential restructuring, there can be no assurance we will reach an agreement with the unsecured noteholders in a timely manner, on terms that are attractive to us, or at all,” the filing said. “The company expects to continue to provide quality service to its customers without interruption and work with its business partners as usual during the course of these discussions and any potential transaction.”

Frontier plans to evaluate the sale of assets during chapter 11, according to the filing.

Froniter couldn’t be reached for further comment.

Washburn said a debt-for-equity swap agreement to either to prevent a chapter 11 filing or within chapter 11 to get key creditors on board is nothing unusual.

“Frontier is a stable business with a profitable if slowly eroding core revenue base,” he said. “This kind of business is extremely predictable, so I see no major roadblocks for investors and the operator to come to an agreement, and Frontier emerges as a more stable company.”

In the light of COVID-19, the “math changes” in hard-to-predict ways, Washburn said.

“In its favor, Frontier’s mostly rural and suburban local service areas should be nearly as robust as other utilities,” he said. “The stable customer base and revenue stream makes the business very attractive for investors, to work with the company through its bankruptcy and re-emergence. On the other hand, even a stable business like Frontier will suffer some knocks to its revenue base. We expect small U.S. businesses to be hit extremely hard. Consumers are likelier to consolidate voice subscriptions, dropping their fixed line to become mobile-only households. There is also the risk of a credit crunch, which might prevent Frontier from tapping capital markets to cut deals that swap out investors, or to draw on additional financing.”

The end result is what should usually be a relatively simple process might become much more drawn out and complicated, Washburn said. But what really matters is that no regardless of court filings and financial battles, the business itself is “robust and sustainable,” and day-to-day operations will continue as normal, he said.