On Friday, Frontier Communications announced the Federal Communications Commission (FCC) has signed off on its Chapter 11 restructuring. Once it does emerge from Chapter 11, which Frontier said would happen in "early 2021," it will have shaved its debt by approximately $10 billion, and made a significant dent in its annual interest expense of approximately $1 billion.
With the FCC in hand, Frontier now has regulatory approvals, or favorable determinations, for its required change-in-control applications related to its court-supervised restructuring from the FCC and 13 states: Arizona, Georgia, Illinois, Minnesota, Mississippi, Nebraska, Nevada, New York, Ohio, South Carolina, Texas, Utah and Virginia.
“We continue to make important progress in our constructive engagement with regulators across our service territories, and this approval from the FCC marks a major milestone,” said Frontier CEO and President Bernie Han, in a statement. “We continue to await approval in just four states and are working to expedite those approvals to enable the Company to emerge from Chapter 11. Our team remains focused on our transformative strategy to strengthen our financial foundation, improve our operations and enhance our customer experience throughout the U.S.”
Frontier's post Chapter 11 structure will consist of three newly-formed holding companies, all Delaware entities: Reorganized Frontier, Frontier Communications Intermediate (Frontier Intermediate), and Frontier Communications Holdings (Frontier Holdings).
“We are pleased by the FCC’s affirmative decision for Frontier," said Jonathan Spalter, president and CEO of USTelecom, in a statement. "More than ever, Frontier serves a vital function in providing essential telecommunications services. This decision is a major step toward successfully completing the Company’s restructuring, enabling it to move forward in delivering services to its customers and creating benefits for communities across the U.S.”
Frontier was one of the 180 winners in the Phase 1 of the FCC's Rural Digital Opportunity Fund (RDOF) reverse auction to build out broadband in rural, underserved areas. The FCC also said Frontier would be allowed to continue to participate in the RDOF builds under its new structure.
Frontier Communications filed for bankruptcy on April 14 to begin a prearranged $10 billion debt-cutting proposal backed by its largest bondholders. Frontier announced it had entered into a Restructuring Support Agreement (RSA) with bondholders representing more than 75% of its $11 billion outstanding unsecured bonds.
In August, the U.S. Bankruptcy Court for the Southern District of New York approved Frontier's plan for reorganization. According to Frontier's bankruptcy plan, four investment firms will own between 20% and 28% of the new company: Elliott Management, Franklin Mutual, Golden Tree Asset Management, and HG Vora.
The FCC also approved the foreign 5.5% equity and voting interests that would be held indirectly in Frontier Intermediate by HG Vora Special Opportunities Master Fund, Ltd., upon emergence from Chapter 11 bankruptcy.
"We also approve Petitioner’s request for advance approval, pursuant to section 1.5001(k), permitting HG Vora Special Opportunities Master Fund, Ltd. to increase its indirect equity and voting interest in Frontier Intermediate up to and including a 49.99% non-controlling interest," the FCC said.
Currently, Frontier, is the fourth largest local telecommunications company in the United States, serving approximately 4.1 million customers in 29 states. Frontier currently owns and operates more than 50 incumbent local exchange carriers (LECs) in 25 states.
"After a thorough review of the Applications and the record in this proceeding, we find that the Applicants are fully qualified and conclude that the grant of the Applications, as conditioned, would serve the public interest," the FCC said in its conclusion. "We also find the public interest would not be served by prohibiting the foreign ownership that would be held in the Operating Subsidiaries’ proposed controlling U.S. parent, Frontier Intermediate, upon emergence from Chapter 11 bankruptcy. We also find the public interest would not be served by prohibiting the foreign ownership that would be held in the Operating Subsidiaries’ proposed controlling U.S. parent, Frontier Intermediate, upon emergence from Chapter 11 bankruptcy, or by strictly applying the prohibition on major changes to a Rural Digital Opportunity Fund long-form application in these particular circumstances. We therefore grant the Applications, Petition, and waiver request."