Tuesday, December 3, 2019

Frontier Communications Inc. Distressed Debt

Frontier Communications is a broadband internet, cable, and telephone company, formerly known as Citizens Utilities Company until May 2000 and Citizens Communications Company until July 31, 2008. (Interestingly, Citizens Utilities Company of Minneapolis was formed from remnants of Public Utilities Consolidated Corporation created by Wilbur B. Foshay.) Citizens Communications acquired the Frontier name and local exchange properties from Global Crossing in 2001. In May 2008, they changed the holding company name to Frontier Communications Corporation.

They provide service in 29 states to 4.2 million customers and 3.6 million broadband subscribers at an average monthly revenue per customer of $88.45. Their customer count was down 8% from third quarter 2018 to third quarter 2019, which is brutal in a high fixed cost business, although revenue per customer was up 4% year over year. The result was that revenue was down 6%.

Is this kind of like the tobacco business, with falling customer counts but rising prices? Cable companies ought to have some properties of good businesses: lack of competition and stickiness. How many choices do customers have, and how often do people switch their phone, cable, or internet providers, even when they have a choice?

The fixed cost structure is bad when customers are leaving. That's not a problem that the tobacco companies have. However, Frontier was able to cut some costs. Network access costs declined 13% year-over-year in the third quarter. And their own "network related expenses" were down 3%. The third category of recurring cash expenses, SG&A, was flat. The result was that EBITDA for Q3 was $781 million, versus $852 million the prior year - down 8.3%. That is more than the revenue decline - thanks to operating leverage. The current EBITDA figure would be $3.1 billion annualized. At the current run rate, this year's capex will be $1.2 billion, for a projected FCF of $1.9 billion before allowing for further customer declines.

We have previously mentioned that Frontier's debt is distressed, and that hedge funds are prodding the company to file for bankruptcy. You can readily see the unsupportable leverage of Frontier by the market value of its equity (only $68 million) compared to its total liabilities ($21.7 billion in Q3 2019), or by the trading prices of its unsecured debt. The capital structure consists mainly of $10.9 billion of unsecured holding company debt (which is the fulcrum). Senior to that is $5.7 billion of secured debt, which consists of $2.45 billion of bank debt and then $1.65 billion of first lien secured notes (8% due April 2027) and $1.6 billion of second lien secured notes (8.5% due April 2026).

The total debt load is $17.5 billion. There is also $2.1 billion of pension, post retirement benefits, and other liabilities; and $1.7 billion of non-debt current liabilities, against $1.6 billion of current assets (excluding assets held for sale).

One thing you will notice is that the unsecured holding company debt maturing between 2021 and 2046 is trading solidly in the 46 range, with the exception of a couple tiny pieces and more notably with the exception of the two pieces that mature in April and September of 2020. It is a distress indicator when you have debt of higher and lower coupons all trading at the same price, based on an assumption of what the recovery will be. Even the fat 10.5% coupon on the September 2022 debt is not enough to budge the price from the same level that a January 2025 6.88% bond is trading at. Another good distress indicator is the fact that the $10.9 billion principal amount of unsecured debt trades at a market value of $5.1 billion - a $5.8 billion "hole" in the capital structure. The higher price for the 2020 debt suggests a small chance that the company will limp along for another year.

As Moody's commented on November 12:
Frontier's credit profile is supported by the company's large scale of operations, its predictable cash flow and extensive network assets. The rating is also supported by the company's improved ability to generate cash following the elimination of its common dividend in early 2018. Moody's expects Frontier to have adequate liquidity to retire the remainder of its outstanding unsecured debt maturing prior to 2022. Frontier has been meaningfully reducing its refinancing risk hurdles in the near term, including through a March 2019 refinancing of short-dated first lien term debt with a first lien bond offering. Though Frontier expects gross proceeds of $1.352 billion from the sale of western state operations in first half 2020 (subject to closing adjustments), the use of such proceeds remains undisclosed but will likely facilitate capital structure enhancement efforts.
They just sold their "Northwest Operations" (Washington, Oregon, Idaho, and Montana) for $1.35 billion, which represented 7% of revenues, but chose not to disclose what proportion of operating profit these operations represent. Considering that this would value the entire enterprise at $19 billion, it is likely that this company followed typical "circling the drain" behavior and sold one of its better divisions in order to buy time. It's always easier to sell a better division. 

It may be possible to use some of those $1.35 billion proceeds to pay the 2020 debt maturities and interest payments, which include something like $333 million on March 15 and $381 million on April 15). On the other hand, there are leverage covenants in their secured debt that apparently step down from 1.5x EBITDA to 1.35x EBITDA in Q2 2020. They have $4.1 billion of first lien secured debt, so the 1.35x limit would be iffy given the recent $3.1 billion of annualized EBITDA. So if the company decides not to restructure, it may need to take a good chunk of the proceeds to pay down first lien debt with covenants before it could use any to buy back unsecured debt at a discount.

So we can guess that this company will restructure in 2021 if not next year, and we know that the unsecured is the fulcrum security. The question is: what should the unsecured debt be trading for. In order to estimate that, we need to think about the value of the enterprise and the liabilities that are ahead of the unsecured debt. Frontier itself attempts to assess its enterprise value, as disclosed in its filings:
We use a market multiples approach to determine Frontier’s enterprise fair value for purposes of assessing goodwill for impairment. Marketplace comparisons, analyst reports and trends for other public companies within the telecommunications industry whose service offerings are comparable to ours have a range of fair value multiples between 4.1x and 7.6x of annualized expected EBITDA as adjusted for certain items.  At September 30, 2019, we estimated the enterprise fair value using an EBITDA multiple of 4.4x.
Using a 4.4x multiple on $3 billion of EBITDA would imply that the enterprise is worth $13.2 billion. Enough to cover all of the secured liabilities and structurally senior subsidiary debt of $6.6 billion, but not enough to cover the unsecured debt and other unsecured liabilities, which appear to total $13 billion. This would leave unsecured creditors with ~50 cents on the dollar, just north of where the bonds are trading right now. When was the last time we even saw a pre-bankrupt company with  unsecured debt that stood to recover something?

Of course, we should not take the company's EBITDA projection or multiple at their word. Here are some competitors in the space (CenturyLink, Cincinnati Bell, and Consolidated Communications Holdings) and their enterprise value multiples.

Market Cap EV EBITDA (ttm) EV/EBITDA
CTL 15,590 51,290 9,180 5.6
CBB 325 2,580 392 6.6
CNSL 263 2,630 462 5.7
13,000 3,100 4.2

The FTR is for the enterprise value of the debt only, at approximate market values of the debt. Notice that CBB and CNSL have very small market capitalizations in relation to their enterprise values. As one analyst we read pointed out, "at some point, all industry players will not be able to service their unsecured debt and will need to restructure". That analyst also pointed out that the CBB and CNSL stocks are probably inappropriately valued:
Unsecured debt of CBB and CTL is being created at substantially higher multiples, compared to those of CNSL and FTR. The same pertains to the market creation of unsecured debt plus equity. Why? Just because these companies are paying dividends.
So here is how the FTR unsecured recovery would look for the following pairs of EBITDA and EBITDA multiples, and assuming that $6.571 billion of liabilities would be in front of them and they would share with $13 billion of total unsecured liabilities:

4.25 4.5 4.75 5 5.5
2,400 28% 33% 37% 42% 51%
2,600 34% 39% 44% 49% 59%
2,800 41% 46% 52% 57% 68%
3,000 48% 53% 59% 65% 76%
3,200 54% 60% 66% 73% 85%

The big questions are: what is the EBITDA that this business will earn going forward, and what multiple would the enterprise be worth. On the EBITDA question, it is alarming how rapidly the company's business is shrinking. They went from 4.85 million customers at the end of 2017 to 4.2 million now, a 13% drop in under two years. With that level of customer exodus, the chart of historical EBITDA by quarter is not too pretty. 

The analyses that I have seen are pretty complacent about EBITDA. They take a >$3 billion level as a given and then assume that since CBB and CNSL's debt (which both trade close to par) create those enterprises at >5x EBITDA, FTR will do the same. The problem is that if the ice cube continues to melt, not only will EBITDA be lower, but it will probably be worth a lower multiple. In the 2x2 matrix of unsecured recoveries above, there's really only a line of realistic outcomes: low EBITDA, low multiple; or high EBITDA, high multiple.

Unless you can have reason to believe that the decline in customer losses is about to stop, there does not seem to be a margin of safety in the unsecured debt. If 13% of customers (net - more after figuring churn) left over the past two years, they probably went somewhere, since they are not likely just canceling their internet entirely. There must be competitors in Frontier's markets that are better or cheaper and are eating their lunch. For all we know, the most alert or savvy customers are the ones who just left and it is the beginning of an S-curve of the slower to react customers leaving too.


Anonymous said...

Frontier is a telecom provider with a national footprint and a focus on internet operations. Frontier Communications was cobbled together in a series of acquisitions, the largest of which was Verizon’s FIOS assets in California, Florida, and Texas. The company is deeply troubled. Unlike our Nuvera Communications and LICT Corp., Frontier is massively leveraged, struggles with a low-quality network, and faces aggressive competition. Despite a huge effort to upgrade its aging copper network to modern fiber, Frontier has not managed to stem customer losses. The company has used operating cash flow and asset sales to reduce debt, but it has not
been enough. The market clearly expects Frontier to declare bankruptcy and restructure, shedding many billions in debt.

So why get involved? Turns out Frontier’s junior debt trades at highly distressed levels. Despite its obvious issues, Frontier has quite a bit of value as a going concern. The company will earn roughly $3.5 billion in EBITDA this year, ignoring the contribution of assets earmarked for sale. Even assuming a rock-bottom valuation of 4x EBITDA, Frontier is worth $14 billion. Frontier’s total debt is over $17 billion, so there’s little hope for the equity except under the most optimistic scenarios. Frontier has $5.5 billion in secured debt and net pension and retirement obligations of around $2 billion. Deducting those obligations from the $14 billion enterprise value leaves $6.5 billion in value. Frontier has unsecured junior debt totaling $11.7 billion. In a bankruptcy scenario, junior debtholders could reasonably expect to receive about 56 cents on the dollar. This aligns well with
recent trading in the various series of junior debt.

So, what makes this debt interesting? As it turns out, there is a way to invest in Frontier’s debt at a far lower price. Merrill Lynch Depositor Inc., PreferredPlus, 8.375% Trust Certificates, PreferredPlus Trust Series CZN-1 may be a mouthful, but it is simply some long-term unsecured Frontier debt repackaged into an exchange-listed baby bond, ticker PIY. Underlying each share of PIY is $29.71 face value of Frontier debt due 2046. Adjusted for accrued interest, PIY allows us to invest in this debt at 43% of par value, a 17% discount to the trading price of the underlying bonds. It gets more interesting. Should Frontier default enter bankruptcy, PIY’s trustees will immediately sell the underlying bonds and distribute the cash to PIY’s holders, closing the gap between PIY’s trading price and the value of the underlying bonds. Trading at 52, these bonds are clearly already pricing in a bankruptcy filing, so I don’t expect them to fall materially when and if the company files. If Frontier does pull off a near-miracle and regain its financial footing, we will benefit as the value of the underlying bonds rise. There are two ways to win, and the discount to the value of the underlying bonds protects us should Frontier’s value decline further.

The reason PIY is cheap should be a familiar one for Alluvial Fund partners: illiquidity. PIY’s dollar volume averages only $40,000. What’s more, the baby bond market is highly retail driven. Many holders may be unaware of the value of the value of the underlying securities.

Anonymous said...

Frontier Communications Corporation (FTR) announced today that the Company’s Board of Directors has unanimously appointed Bernard L. “Bernie” Han as President and Chief Executive Officer and a member of the Board, effective immediately. Mr. Han succeeds Daniel McCarthy, who is stepping down as President and Chief Executive Officer and from his position on the Board.

CP said...

This is the sort of complacent analysis that I mentioned in the post.

The mrq annualized EBITDA is only $3.2 billion now, not $3.5, and there's no guarantee the decline stops there. And the worse the decline gets, the lower the multiple will be.

Also, it's not necessarily a feature that the trust is going to dump the bonds. Would probably be better if the trust just held on and eventually distributed whatever securities the bonds get in the reorganization.

Unknown said...

My comment is noy of my normal personality but I have been in the clutches of this company since August. And its not about their lies and lack of its about safety and 2 people who could very well be dead because they don't understand what their lies and non compliance has to do with safety and saving lives. Im done with this comment and will be in touch with the government agencies as well an attorney.

Unknown said...

Frontier has stopped medical benefits for retired veterans in ct .They are scum

Unknown said...

Frontier stops medical coverage for retired veterans in ct

CP said...

The stock is at ~80 cents today.

Bond quotes:

FTR 8 ½ 04/15/20 ~$60.25 / $62.875 bid/ask
FTR 8 ⅞ 09/15/20 ~$49.50-$58.00 bid/ask

New CEO appointed on December 3rd:

On December 3, 2019, the Board of Directors (the “Board”) of Frontier Communications Corporation (the “Company”) appointed Bernard L. Han as President and Chief Executive Officer of the Company and as a member of the Board, effective immediately. Mr. Han succeeds Daniel J. McCarthy, who stepped down as President and Chief Executive Officer and from his position on the Board as of such date.

Mr. Han, age 55, was retained by the Finance Committee of the Board as an advisor beginning October 16, 2019, and has been actively supporting efforts to strengthen the Company’s financial position since that time. Mr. Han previously served as Executive Vice President of Strategic Planning at Dish Network Corp., a broadcast satellite service provider, a role he held from December 2015. Prior to that, Mr. Han served as the Chief Operating Officer of Dish Network Corp. from April 2009 to December 2015 and as the Chief Financial Officer of EchoStar Corporation, a global satellite services provider, from September 2006 to April 2009. From 2002 to 2005, Mr. Han served as the Chief Financial Officer and Executive Vice President of Northwest Airlines Corp. From 1996 to 2002, Mr. Han held several executive positions at America West Airlines, Inc., including Executive Vice President and Chief Financial Officer and Senior Vice President of Marketing and Planning. From 1988 to 1995, Mr. Han held various finance and marketing positions at Northwest Airlines Corp. and American Airlines. Mr. Han is a member of the Board of Directors and Audit Committee of Frontier Airlines and previously served on the Board of Directors of ON Semiconductor Corporation. Mr. Han holds a B.S., M.S. and M.B.A. from Cornell University.


The rest of the unsecured bonds seem to be trading in the high 40s.

Ponch73 said...

I have WAY more confidence in CBS' $3.2 billion EBITDA estimate than in Alluvial's $3.5 billion EBITDA estimate.

1. Frontier's own Q3 presentation shows Adjusted EBITDA at $804 million, which annualizes to $3.216 billion.
2. If you take $1.103 billion in operating cash flows for the past 9 months, and add back cash interest of $1.208 billion and cash taxes of $0.005 billion, you get $2.316 billion, which annualizes to $3.088 billion.

I am curious to know why annualized EBITDA (or annualized Adjusted EBITDA) is the best measure of FTR's Enterprise Value going forward. Several concerns I have (echoing the thrust of this brilliant article by CBS) are as follows:

1. Annualized EBITDA includes the results of the Northwest operations that are being sold off. It's also reasonable to expect that FTR's operations in the Seattle and Portland metro areas are pretty prime, and don't appear to include any of the substandard copper operations that are most competitively challenged.
2. EBITDA doesn't include maintenance cap ex, which isn't a discretionary expenditure that can be eliminated without impairing the value of the enterprise. Cap ex over the last 7 quarters has averaged roughly $300 million. Maybe true maintenance cap ex is half that amount, but cap ex has been relatively steady even as revenue has declined. I think it's reasonable to expect that cap ex will reduce cash flow available to retire debt by a non-insignificant amount.
3. EBITDA doesn't include working capital effects and deferred income taxes, which, in total, have represented a cash outflow for each of the past 6 years.
4. Adjusted EBITDA excludes (presumably "one-time") restructuring expenses that seem to persist quarter after quarter.

My order for some longer-dated OTM FTR puts executed today. I think the odds are good that FTR equity is worth zero.

Ponch73 said...

Just found a March 2019 press release that indicates that the Northwest operations served more than 350,000 customers and contributed $619 million in revenues and $272 million in Adjusted EBITDA for the twelve months ending March 31, 2019.


If my calculations are correct, Northwest operations generated 43.9% Adjusted EBITDA margins versus Frontier's company-wide 41.5% Adjusted EBITDA margin over the same timeframe.

As suspected, FTR is selling off one of its above average properties.

Ponch73 said...

I stand corrected on the Northwest operations not appearing to have a copper broadband footprint. Press release in previous post indicates the following:

Across the four states, Frontier’s network passes 1.7 million residential and business locations, of which approximately 500,000 are fiber-to-the-premises capable. As of March 31, 2019, Frontier served approximately 150,000 fiber broadband, 150,000 copper broadband and 35,000 video connections in these states.

CP said...

Good find! That makes sense.

An interesting question is - why did FTR management decide to sell a choice asset for ~5x EBITDA?

Assuming the company will one day go bankrupt, cause the reorganized entity to miss out on a big chunk of cash flow.

What they gain is liquidity that allows them to buy time.

There is currently a 60 cent bid for the April 8.5% notes, of which there are only $172 million outstanding.

The further out notes are trading at 47.5 or so.

There's 12.5 points of downside if they don't pay at maturity, vs 40 upside if they pay.

So, market is saying ~75% chance of default.

CP said...

Also, did you see that CBB, one of the comps from the post above, has been sold:

Cincinnati Bell Inc. (CBB), together with Brookfield Infrastructure (NYSE: BIP; TSX: BIP.UN), today announced an agreement through which Brookfield Infrastructure and its institutional partners will acquire Cincinnati Bell in a transaction valued at approximately $2.6 billion, including debt (the “Transaction”).

Pursuant to the agreement, each issued and outstanding share of Cincinnati Bell common stock will be converted into the right to receive $10.50 in cash at closing of the Transaction. The Transaction price of $10.50 per share of Cincinnati Bell common stock represents a 36% premium to the closing per share price of $7.72 on December 20, 2019 and an 84% premium to the 60-day volume weighted average price.


It is trading at $530 million market capitalization now, up from $325mm when the post was written. That adds about 0.5x to the EV/EBITDA multiple in the post, pushing it over 7x.

An interesting scenario to think about is one where Frontier's EBITDA is lower than mentioned in the post, but the market multiple remains on the higher side, in line with the 5x sale of their NW'ern operations and the 7x sale of CBB.

That, in turn, would imply that FTR unsecured debt (for the out years, trading in the high 40s) is reasonably close to fair value, and that the equity becomes worthless when they finally restructure.

CP said...

I agree that EBITDA is a flawed metric, for the reasons that you stated. When comparing FTR and CBBs EBITDAs, EVs, and multiples, an implicit assumption is that the two companies would have to reinvest comparable fractions of EBITDA into maintenance capex. That would mean that a 5x multiple, which implies a 20% "EBITDA yield", would not actually result in a 20% cash return to the owner's pocket but would result in something predictably less.

Of course, if one company had a greater degree of deferred maintenance, perhaps due to a recent history of financial distress, then it would deserve to trade at a discounted multiple in order to factor in the need for maintenance catch-up, which would be a cash flow burden for some number of years.

Ponch73 said...

The CBB transaction definitely sheds some doubt on my bet that FTR equity is worthless. If FTR was valued at the same 7.1x EV/EBITDA multiple that Brookfield paid for CBB after it closes the Northwest operations sale, then even FTR equity would boast significant residual value. A 7.1x multiple on $3.0 billion in EBITDA is $21.3 billion, add the $1.3 billion from the sale, and you more than cover all of the secured debt, retirement obligations and other liabilities, and the unsecured debt. If you believed in such a multiple, you'd be smart to be buying OTM calls like crazy.

I'm not a cable/telco industry expert by any means, but I suspect that there may be some significant differences between CBB and FTR that suggest a much lower EBITDA multiple for FTR:

1. CBB may be much more levered to metro areas on the whole (e.g., Cincinnati, Dayton, Honolulu, Maui) than FTR, which might have proportionally higher rural exposure.
2. As you note in your comment above, CBB may be much further along in upgrading its network to fiber than FTR. CBB claims to be more than 50% complete, and I'm not sure where FTR stands in that metric.
3. CBB doesn't have any real debt maturities until 2024-25 when $1.5 billion comes due. FTR has $2.7 billion coming due by 2022.
4. CBB didn't just sell off a portion of their network that generates a higher EBITDA margin on average than the company overall for a 5x EBITDA multiple.
5. The bond market certainly doesn't hold FTR in the same esteem as CBB. Fidelity's bond desk had CBB's June 2023 bonds quoted above par in October, 2 months before the Brookfield transaction. We certainly can't say the same for FTR. Even its closet-to-maturity debt is trading at 60.

CP said...

We have been Frontier customers since the transition from Verizon. Moving to Frontier was not our choice and the level of Service at Verizon was in my opinion far superior. I'm not sure you are aware but as a customer the transition was a struggle, we experienced numerous outages, issues with the software and issues with billing but we stuck it out. Fortunately, after the first year things seemed to settle down and we have been a mostly satisfied customer.

Unfortunately, we were hit with an outage for whatever reason this week. Out Internet and TV services are both down. I called for support and they determined it would require an onsite visit. Your earliest availability is Friday the end of day. I work from home and I'm currently working on a huge project this week and I am now am left with out any service. I want to make it clear this isn't just about entertainment for me, the lack of connectivity service is a hardship to me, my employer and my family.

I spent the day calling and begging for help or an earlier date to learn the following:

1. Frontier just really doesn't care about their customers problems. I was told not to even expect a CALL back in less than 48 business hours?
2. Spectrum cable can deliver NEW service sooner than I can get a service call from Frontier Communications.
3. Spectrum Cable is $100 cheaper a month or faster service.
4. Spectrum Cable apparently wants my business and Frontier really doesn't care.

After 4 years of paying a ton of money per month and I can't even get call back in less than 48 hours? How can you have so few techs we have to wait 3 full business days for a customer service call? What are the growing number of people who work from home and rely on your services for their livelihood supposed to do for 3 days? Just seems to me Frontier doesn't care.


Ponch73 said...

Those Yelp reviews are brutal, and certainly shed some light on the declining top line numbers. Interestingly enough, the new CEO is a veteran of Dish Network, which also doesn't enjoy much love from customers on Yelp.

The only way FTR could overcome such terrible customer service is if it enjoyed monopoly status in its largest municipalities (doubtful) or if its core network was advantaged in terms of speed (e.g., fiber). As a case in point, Centurylink is currently running fiber in my Pacific Northwest neighborhood, which bodes very poorly for Comcast's ability to retain me as a high-speed Internet customer. And I haven't even had any speed degradation, network outages or run-in's with Comcast customer service.

Folks expecting a persistent $3.2 billion, or even $3.0 billion annual EBITDA number for FTR going forward may be in for an unpleasant surprise.

Ponch73 said...

According to the website below, FTR has a meaningful fiber footprint in the West LA/Long Beach/Inland Empire, Tampa/St. Pete, north Dallas suburbs and a small fiber footprint in the Galveston and Ft. Wayne markets. Those pockets are dwarfed by its DSL footprint.


It appears that FTR is going to have a tough time competing in a 4G world moving to 5G.

CP said...

To be fair to FTR, if you look at any cable company's Yelp reviews they are pretty much one star. Internet service isn't something like restaurants where people leave a 5 star review to cap off and memorialize a great experience.

But it is very interesting to see the specific detail about competitors that FTR customers are switching to. As I said in the post:

If 13% of customers (net - more after figuring churn) left over the past two years, they probably went somewhere, since they are not likely just canceling their internet entirely. There must be competitors in Frontier's markets that are better or cheaper and are eating their lunch. For all we know, the most alert or savvy customers are the ones who just left and it is the beginning of an S-curve of the slower to react customers leaving too.

So this is a melting ice cube. That explains the low EBITDA multiple.

FTR has possibly also made the decision that they have a core of customers with huge inertia who won't switch very quickly, savvy customers who will and who are not economical to try to retain, and so the value maximizing decision is to gut service and basically operate the business in runoff.

How would that look any different than what they are doing now??

Ponch73 said...

FTR has possibly also made the decision that they have a core of customers with huge inertia who won't switch very quickly, savvy customers who will and who are not economical to try to retain, and so the value maximizing decision is to gut service and basically operate the business in runoff.

How would that look any different than what they are doing now??

It might look different in the following ways:

1. SG&A and cap ex would trend down more markedly
2. You would see more divestitures and asset sales involving marginal territories (ones with lower than average EBITDA margins) to low cost operators, P/E firms, municipalities, etc., at bargain basement multiples
3. Adjusted EBITDA and operating cash flow margins would improve
4. CEO wouldn't get fired at end of year

I think Occam's Razor applies here. The cord-cutting trend continues unabated, FTR has little or no sustainable competitive advantage, and market share losses continue to accrue to cable competitors with better networks and/or customer service, and mobile. JMHO.

CP said...

Great observations.

N. Brown said...

Anyone know to whom at FTR the letter proposing bankruptcy was sent? Who is the the contact there to appeal to?

CP said...


CP said...


CP said...


Ponch73 said...

If my math is right, FTR didn't even generate $800 million in EBITDA in Q4 2019, so the hopes for $3.2 billion, let alone $3.5 billion in 2020 EBITDA are dashed.


Based on the company's filing of preliminary results, in Q4, it generated:

$(162) million of net income

If we assume that D&A and interest expense were the same as in Q3 and that any income tax benefit was negligible, we'd then add back :

$422 mil of depreciation & amortization
$382 mil of interest expense

Which gets us to $642 million of EBITDA

$642 million annualized is $2.568 billion of EBITDA.

At that level of EBITDA, it would take a pretty heroic multiple to assume any residual equity value.

CP said...

From the filing:

Frontier Communications Corporation (the “Company”) is filing this Notification of Late Filing on Form 12b-25 with respect to its Form 10-K for the fiscal year ended December 31, 2019 (the “Form 10-K”). The Company has determined that it is unable to file its Form 10-K within the prescribed time period without unreasonable effort or expense for the reasons set forth below.

Since January 2020, the Company has been engaged in discussions with certain holders of the Company’s unsecured notes with respect to potential deleveraging or restructuring transactions, which may include the filing of chapter 11 cases under the U.S. Bankruptcy Code to implement the transactions. These discussions have involved significant resources and have been a priority for management. The Company disclosed on March 16, 2020, that it has made the decision to defer making an interest payment on certain of its unsecured notes and enter a 60-day grace period allowed under the applicable indenture to facilitate these ongoing discussions with the Company’s bondholders. The Company cannot assure you if or when it will agree on the terms of or consummate any potential restructuring or deleveraging transactions. The Company’s financial, accounting and administrative personnel have been supporting these negotiations and have been focused on maintaining the Company’s ongoing operations and implementing operational reviews and initiatives. These negotiations and activities involve significant resources, place increased burdens on the Company’s management and staff and occurred at the time during which year-end close procedures are normally conducted.


CP said...

Thanks for doing those calculations.

So, results were down substantially in Q4 even before this Q1 economic disaster.

Glad we passed on the debt!

Ponch73 said...

Someone more generous than me might want to give FTR credit for its adjusted EBITDA, a figure that I hold in absolute contempt. Nevertheless, I would estimate Q4 adjusted EBITDA at roughly $757 million, down from the $804 million in adjusted EBITDA reported in Q3. Annualizing that number would give FTR a run-rate EBITDA of roughly $3 billion.

Here's my attempt at estimating that financial monstrosity.


Net Income $(162) actual

Income Tax Expense (10) estimate
Interest Expense 382 estimate
Investment and Other Loss 10 estimate
Depreciation & Amortization 422 estimate
Pension Settlement Costs 57 actual
Loss on Extinguishment of Debt 0 estimate
Restructuring and Other Costs 23 actual
Stock-Based Comp Expense 3 estimate
Storm-Related Insurance Proceeds 0 estimate
Loss on Disposal of NW Operations 32 actual
Goodwill Impairment 0 actual

Adjusted EBITDA $757 estimate

What's amazing about that number, charitable as it may be to management, was that (1) it included EBITDA from the northwest operations that were not divested until 2020, and (2) it was before any coronavirus-related business disruptions occurring in late February / early March.

Anonymous said...

Low 20s for the unsecured.

Recent filings:

Anonymous said...

The slides say that their base case EBITDA is declining to $2 billion a few years out!