tag:blogger.com,1999:blog-1527840491496268397.post6153805975686287978..comments2024-03-08T11:20:30.095-07:00Comments on Credit Bubble Stocks: Frontier Communications Inc. Distressed DebtUnknownnoreply@blogger.comBlogger30125tag:blogger.com,1999:blog-1527840491496268397.post-73865306342229869152020-04-01T13:34:51.769-07:002020-04-01T13:34:51.769-07:00The slides say that their base case EBITDA is decl...The slides say that their base case EBITDA is declining to $2 billion a few years out!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1527840491496268397.post-37222467824569371492020-04-01T13:28:36.123-07:002020-04-01T13:28:36.123-07:00Low 20s for the unsecured.
Recent filings:
https:...Low 20s for the unsecured.<br /><br />Recent filings:<br />https://www.sec.gov/ix?doc=/Archives/edgar/data/20520/000114036120007583/form10k.htm<br />https://www.sec.gov/ix?doc=/Archives/edgar/data/20520/000114036120007104/nc10009883x2_8k.htmAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-1527840491496268397.post-58054786004775828862020-03-24T01:47:59.459-07:002020-03-24T01:47:59.459-07:00Someone more generous than me might want to give F...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.<br /><br />Here's my attempt at estimating that financial monstrosity. <br /><br /><b> Q4 <br /><br />Net Income $(162) actual </b><br /><br />Income Tax Expense (10) estimate<br />Interest Expense 382 estimate<br />Investment and Other Loss 10 estimate<br />Depreciation & Amortization 422 estimate<br />Pension Settlement Costs 57 actual<br />Loss on Extinguishment of Debt 0 estimate<br />Restructuring and Other Costs 23 actual<br />Stock-Based Comp Expense 3 estimate<br />Storm-Related Insurance Proceeds 0 estimate<br />Loss on Disposal of NW Operations 32 actual<br />Goodwill Impairment 0 actual <b><br /><br />Adjusted EBITDA $757 estimate </b><br /><br />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.Ponch73noreply@blogger.comtag:blogger.com,1999:blog-1527840491496268397.post-44866563965979164562020-03-23T09:55:23.661-07:002020-03-23T09:55:23.661-07:00Thanks for doing those calculations.
So, results ...Thanks for doing those calculations.<br /><br />So, results were down substantially in Q4 even before this Q1 economic disaster.<br /><br />Glad we passed on the debt!CPhttps://www.blogger.com/profile/12701174164478027499noreply@blogger.comtag:blogger.com,1999:blog-1527840491496268397.post-49364071895301451062020-03-23T09:53:29.111-07:002020-03-23T09:53:29.111-07:00From the filing:
Frontier Communications Corporat...From the filing:<br /><br /><i>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.<br /><br />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.</i><br /><br />https://www.sec.gov/Archives/edgar/data/20520/000114036120006088/nc10009883x4_nt10k.htmCPhttps://www.blogger.com/profile/12701174164478027499noreply@blogger.comtag:blogger.com,1999:blog-1527840491496268397.post-10713912371348607392020-03-22T22:34:34.132-07:002020-03-22T22:34:34.132-07:00If my math is right, FTR didn't even generate ...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 $3.5 billion in 2020 EBITDA are dashed.<br /><br />https://seekingalpha.com/filing/4888017<br /><br />Based on the company's filing of preliminary results, in Q4, it generated:<br /><br />$(162) million of net income<br /><br />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 :<br /><br />$422 mil of depreciation & amortization <br />$382 mil of interest expense<br /><br />Which gets us to $642 million of EBITDA<br /><br />$642 million annualized is $2.568 billion of EBITDA. <br /><br />At that level of EBITDA, it would take a pretty heroic multiple to assume any residual equity value. <br />Ponch73noreply@blogger.comtag:blogger.com,1999:blog-1527840491496268397.post-46757593555224492912020-01-23T12:50:30.459-07:002020-01-23T12:50:30.459-07:00http://www.creditbubblestocks.com/2020/01/fitch-do...http://www.creditbubblestocks.com/2020/01/fitch-downgrades-frontier.htmlCPhttps://www.blogger.com/profile/12701174164478027499noreply@blogger.comtag:blogger.com,1999:blog-1527840491496268397.post-71845216076276297892020-01-19T17:20:05.513-07:002020-01-19T17:20:05.513-07:00http://www.creditbubblestocks.com/2020/01/frontier...http://www.creditbubblestocks.com/2020/01/frontier-tells-creditors-it-seeks-march.htmlCPhttps://www.blogger.com/profile/12701174164478027499noreply@blogger.comtag:blogger.com,1999:blog-1527840491496268397.post-75854293915376309252020-01-14T10:45:45.464-07:002020-01-14T10:45:45.464-07:00http://www.creditbubblestocks.com/2019/10/discover...http://www.creditbubblestocks.com/2019/10/discovery-capital-management-letter-to.htmlCPhttps://www.blogger.com/profile/12701174164478027499noreply@blogger.comtag:blogger.com,1999:blog-1527840491496268397.post-90986943266534799702020-01-14T10:35:14.554-07:002020-01-14T10:35:14.554-07:00Anyone know to whom at FTR the letter proposing ba...Anyone know to whom at FTR the letter proposing bankruptcy was sent? Who is the the contact there to appeal to?N. Brownnoreply@blogger.comtag:blogger.com,1999:blog-1527840491496268397.post-26154873119943025592020-01-08T15:59:01.867-07:002020-01-08T15:59:01.867-07:00Great observations.Great observations.CPhttps://www.blogger.com/profile/12701174164478027499noreply@blogger.comtag:blogger.com,1999:blog-1527840491496268397.post-42787174433734218972020-01-08T14:11:54.748-07:002020-01-08T14:11:54.748-07:00FTR has possibly also made the decision that they ...<i> 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.<br /><br />How would that look any different than what they are doing now?? </i><br /><br />It might look different in the following ways:<br /><br />1. SG&A and cap ex would trend down more markedly<br />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<br />3. Adjusted EBITDA and operating cash flow margins would improve<br />4. CEO wouldn't get fired at end of year<br /><br />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.Ponch73noreply@blogger.comtag:blogger.com,1999:blog-1527840491496268397.post-88165952735894627882020-01-08T10:30:44.654-07:002020-01-08T10:30:44.654-07:00To be fair to FTR, if you look at any cable compan...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. <br /><br />But it is very interesting to see the specific detail about competitors that FTR customers are switching to. As I said in the post:<br /><br /><i>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.</i><br /><br />So this is a melting ice cube. That explains the low EBITDA multiple. <br /><br />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.<br /><br />How would that look any different than what they are doing now??CPhttps://www.blogger.com/profile/12701174164478027499noreply@blogger.comtag:blogger.com,1999:blog-1527840491496268397.post-39351627594895636162020-01-08T10:21:12.624-07:002020-01-08T10:21:12.624-07:00According to the website below, FTR has a meaningf...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.<br /><br />https://broadbandnow.com/Frontier-Communications<br /><br />It appears that FTR is going to have a tough time competing in a 4G world moving to 5G.Ponch73noreply@blogger.comtag:blogger.com,1999:blog-1527840491496268397.post-10607444516037347462020-01-08T10:05:14.329-07:002020-01-08T10:05:14.329-07:00Those Yelp reviews are brutal, and certainly shed ...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. <br /><br />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. <br /><br />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.Ponch73noreply@blogger.comtag:blogger.com,1999:blog-1527840491496268397.post-83087856668291733042020-01-08T09:13:08.751-07:002020-01-08T09:13:08.751-07:00We have been Frontier customers since the transiti...<i><br />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. <br /><br />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. <br /><br />I spent the day calling and begging for help or an earlier date to learn the following: <br /><br />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? <br />2. <b>Spectrum cable can deliver NEW service sooner than I can get a service call from Frontier Communications. <br />3. Spectrum Cable is $100 cheaper a month or faster service.<br />4. Spectrum Cable apparently wants my business and Frontier really doesn't care.</b><br /><br />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.<br /></i><br /><br />https://www.yelp.com/biz/frontier-communications-san-francisco-2?hrid=LgVwuQiGds-KVR4d77JeWA&utm_source=ishareCPhttps://www.blogger.com/profile/12701174164478027499noreply@blogger.comtag:blogger.com,1999:blog-1527840491496268397.post-40163258587515348862020-01-07T22:19:12.950-07:002020-01-07T22:19:12.950-07:00The CBB transaction definitely sheds some doubt on...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.<br /><br />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:<br /><br />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. <br />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.<br />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.<br />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.<br />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.Ponch73noreply@blogger.comtag:blogger.com,1999:blog-1527840491496268397.post-92206928517798871242020-01-07T16:25:27.175-07:002020-01-07T16:25:27.175-07:00I agree that EBITDA is a flawed metric, for the re...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.<br /><br />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.CPhttps://www.blogger.com/profile/12701174164478027499noreply@blogger.comtag:blogger.com,1999:blog-1527840491496268397.post-80545281800496591112020-01-07T16:17:40.543-07:002020-01-07T16:17:40.543-07:00Also, did you see that CBB, one of the comps from ...Also, did you see that CBB, one of the comps from the post above, has been sold:<br /><br /><i>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”).<br /><br />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.</i><br />https://finance.yahoo.com/news/cincinnati-bell-inc-acquired-brookfield-114541449.html<br /><br />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.<br /><br />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. <br /><br />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.CPhttps://www.blogger.com/profile/12701174164478027499noreply@blogger.comtag:blogger.com,1999:blog-1527840491496268397.post-55997459319760659232020-01-07T16:11:55.619-07:002020-01-07T16:11:55.619-07:00Good find! That makes sense.
An interesting ques...Good find! That makes sense. <br /><br />An interesting question is - why did FTR management decide to sell a choice asset for ~5x EBITDA?<br /><br />Assuming the company will one day go bankrupt, cause the reorganized entity to miss out on a big chunk of cash flow. <br /><br />What they gain is liquidity that allows them to buy time.<br /><br />There is currently a 60 cent bid for the April 8.5% notes, of which there are only $172 million outstanding.<br /><br />The further out notes are trading at 47.5 or so.<br /><br />There's 12.5 points of downside if they don't pay at maturity, vs 40 upside if they pay.<br /><br />So, market is saying ~75% chance of default.CPhttps://www.blogger.com/profile/12701174164478027499noreply@blogger.comtag:blogger.com,1999:blog-1527840491496268397.post-35285117820113581672020-01-07T16:08:06.738-07:002020-01-07T16:08:06.738-07:00I stand corrected on the Northwest operations not ...I stand corrected on the Northwest operations not appearing to have a copper broadband footprint. Press release in previous post indicates the following:<br /><br />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, <b> 150,000 copper broadband </b> and 35,000 video connections in these states.Ponch73noreply@blogger.comtag:blogger.com,1999:blog-1527840491496268397.post-81882241998165174632020-01-07T16:02:14.279-07:002020-01-07T16:02:14.279-07:00Just found a March 2019 press release that indicat...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. <br /><br />https://www.businesswire.com/news/home/20190529005579/en/Frontier-Communications-Announces-Sale-Operations-Washington-Oregon<br /><br />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. <br /><br />As suspected, FTR is selling off one of its above average properties. Ponch73noreply@blogger.comtag:blogger.com,1999:blog-1527840491496268397.post-50521169965954511362020-01-07T15:50:08.118-07:002020-01-07T15:50:08.118-07:00I have WAY more confidence in CBS' $3.2 billio...I have WAY more confidence in CBS' $3.2 billion EBITDA estimate than in Alluvial's $3.5 billion EBITDA estimate.<br /><br />1. Frontier's own Q3 presentation shows Adjusted EBITDA at $804 million, which annualizes to $3.216 billion. <br />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.<br /><br />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:<br /><br />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.<br />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.<br />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.<br />4. Adjusted EBITDA excludes (presumably "one-time") restructuring expenses that seem to persist quarter after quarter.<br /><br />My order for some longer-dated OTM FTR puts executed today. I think the odds are good that FTR equity is worth zero. Ponch73noreply@blogger.comtag:blogger.com,1999:blog-1527840491496268397.post-56983959324826855502020-01-02T13:13:10.721-07:002020-01-02T13:13:10.721-07:00The stock is at ~80 cents today.
Bond quotes:
F...The stock is at ~80 cents today. <br /><br />Bond quotes:<br /><br />FTR 8 ½ 04/15/20 ~$60.25 / $62.875 bid/ask <br />FTR 8 ⅞ 09/15/20 ~$49.50-$58.00 bid/ask<br /><br />New CEO appointed on December 3rd:<br /> <br /><i>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.<br /><br />Mr. Han, age 55, was <b>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</b>. 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.</i><br />https://www.sec.gov/ix?doc=/Archives/edgar/data/20520/000114036119021880/form8k.htm<br /><br />The rest of the unsecured bonds seem to be trading in the high 40s.CPhttps://www.blogger.com/profile/12701174164478027499noreply@blogger.comtag:blogger.com,1999:blog-1527840491496268397.post-32957584732946168812019-12-05T13:32:38.781-07:002019-12-05T13:32:38.781-07:00Frontier stops medical coverage for retired vetera...Frontier stops medical coverage for retired veterans in ctAnonymoushttps://www.blogger.com/profile/11716034126589070557noreply@blogger.com