Wednesday, April 15, 2020

"Frontier Communications Announces Restructuring Support Agreement"

Today was a bond maturity, so they just filed chapter 11:

Frontier Communications Corporation (NASDAQ: FTR) ("Frontier" or the "Company") today announced that, together with its subsidiaries, it has entered into a Restructuring Support Agreement ("RSA") with bondholders representing more than 75% of Frontier’s approximately $11 billion in outstanding unsecured bonds (the "Bondholders"). The RSA contemplates agreed-upon terms for a pre-arranged financial restructuring plan (the "Plan") that leaves unimpaired all general unsecured creditors and holders of secured and subsidiary debt. Under the RSA, the Bondholders have, subject to certain terms and conditions, agreed to support implementation of a Plan that is expected to reduce the Company’s debt by more than $10 billion and provide significant financial flexibility to support continued investment in its long-term growth. To implement the Plan, the Company and its direct and indirect subsidiaries voluntarily filed petitions under Chapter 11 of the United States Bankruptcy Code in the Southern District of New York.
Can see the pro forma capital structure that they are proposing:

Unsecured bonds seem to be trading in mid to high 20s. With $11 billion outstanding, that implies a new equity market cap of around $3 billion. And with $5.8 billion of senior / subsidiary debt, that's a new enterprise value of $8.8 billion.

With a go-forward EBITDA assumption of $2.2 billion, the EV/EBITDA multiple would be exactly 4x.

13 comments:

CP said...

The Debtors’ proposed restructuring, if successfully implemented, would result in a substantial deleveraging of the Debtors’ balance sheet by over $10 billion and contemplates the following key terms:
• holders of general unsecured claims will be paid in full, reinstated, or otherwise unimpaired;
• holders of secured debt will be repaid during these chapter 11 cases, paid in full on the effective date of a plan of reorganization (the “Effective Date”), or reinstated;
• holders of Senior Notes (later defined) will receive their pro rata share of 100 percent of the common stock (subject to dilution) of the reorganized Debtors (“Reorganized Frontier”), $750 million of takeback debt (subject to downward adjustment) on either a third lien or a to-be-agreed-upon basis depending on treatment of the second lien notes under a plan, and unrestricted cash of Reorganized Frontier in excess of $150 million as of the Effective Date;
• a post-emergence management incentive plan representing six percent of the total equity value of Reorganized Frontier;
• holders of certain secured and unsecured notes held by the Debtors’ subsidiaries will be reinstated or paid in full on the Effective Date; and
•Consenting Noteholders are entitled to designate two observers to the Company’s Board of Directors

CP said...

In the fall of 2019, the Debtors began to engage formally with certain ad hoc groups comprised of holders of the Senior Notes. In initial discussions, one group of principals and advisors holding Senior Notes was represented by Akin Gump Strauss Hauer & Feld LLP (“Akin”) (as counsel) and Ducera Partners LLC (“Ducera”) (as financial advisor), (the “CTF Notes Group”), and the second group was represented by Milbank LLP (“Milbank”) (as counsel) and Houlihan Lokey Capital Inc. (“Houlihan”) (as financial advisor) (the “Legacy Notes Group”).

The primary divide between the subgroups is that members of the CTF Notes Group hold Senior Notes with an approximately $315 million interest payment that was due on March 15, 2020. The Debtors elected to forgo the interest payment on the CTF Notes and entered into a grace period permitted under the relevant indentures.

CP said...

If the senior notes get $750 million of debt and $150 million of cash ($900 million total) then, assuming that new debt would trade at par, that's equal to eight cents on the current bond price.

Ponch73 said...

Stock still has a bid and the company still has a market cap of $20ish million dollars. This is quite the slow moving train wreck, yet hope springs eternal. I think the equity of the Newco will probably also represent a pretty good short.

CP said...

Stock probably a great buy here at 22 cents? Rare that a Q stock bought in the first couple days post-filing doesn't trade for 2-3x higher during the protracted proceedings until cancellation.

Kaberi and Vik said...

Does that phenomenon exist because of short squeezes?

CP said...

Not clear why, but there are people out there who can't get enough bankrupt stocks.

CP said...

Frontier Communications Corp.’s senior lenders say the telecommunications company’s prearranged bankruptcy plan is a “fragile house of cards” that won’t stand up in court.
https://www.wsj.com/articles/frontier-lenders-say-prearranged-bankruptcy-could-unravel-11587076033

NingCheng said...

Either short squeeze or someone who wants to disrupt the voting procedures? Given such lower trading price, it's more like a lottery.

CP said...

Retail loves bankrupt company stocks. It's one of the ways that you know we're in a gigantic bubble and the S&P is going to fall 50%.

Ponch73 said...

What do you think about HTZ as the next FTR? Similar debt and net debt metrics. Business fundamentally impaired going forward by permanently changing business travel patterns?

CP said...

HERTZ CORP 6.250 of 10/15/2022
Trading for 40 cents, a 50%+ YTM

CP said...

https://www.bloomberg.com/news/articles/2020-04-23/hertz-taps-restructuring-advisers-while-car-rentals-decline