Frontier Communications filed for bankruptcy Tuesday night to kick-start a prearranged $10 billion debt-cutting proposal backed by its bondholders.
Frontier announced it has entered into a Restructuring Support Agreement (RSA) with bondholders representing more than 75% of its $11 billion outstanding unsecured bonds. Frontier's goal is to reduce its debt by more than $10 billion.
Under the terms of the RSA, Frontier said its trade vendors would be paid for goods and services provided both before and after the Tuesday's filing date. Frontier filed in the U.S. Bankruptcy Court for the Southern District of New York.
“We are undertaking a proactive and strategic process with the support of our bondholders to reduce our debt by over $10 billion on an expedited basis. We are pleased that constructive engagement with our bondholders over many months has resulted in a comprehensive recapitalization and restructuring. We do not expect to experience any interruption in providing services to our customers,” said Frontier's Robert Schriesheim, chairman of the finance committee of the board of directors, in a statement. “With a recapitalized balance sheet, we will have the financial flexibility to reposition the company and accelerate its transformation by allocating capital resources and adding talent to enhance our service offerings to our customers while optimizing value for our stakeholders."
Frontier also announced it has secured $460 million in debtor-in-possession financing, which, combined with on hand cash, gives it more than $1.1 billion in liquidly as it continues offering its services to its customers. Frontier offers internet, TV and phone services to business and residential customers across 29 states.
In mid-March, Frontier it would defer making the interest payments that were due on some of its senior unsecured notes. Instead, Frontier said it would enter a 60-day grace period.
In a regulatory filing on March 27, Frontier Communications outlined a restructuring plan that included filing for Chapter 11 bankruptcy. Frontier had debt payments scheduled for April 15, which accounted for it filing for bankruptcy the previous day.
Frontier CEO Bernie Han, who replaced longtime CEO Dan McCarthy December, has been meeting with creditors and advisors since January in order to find a path out of its $17.5 billion debt load.
Frontier said it intends to follow through on its deal last year to sell wireline assets and operations in Washington, Oregon, Idaho and Montana for $1.35 billion. That deal is scheduled to close on or around April 30. WaveDivision Capital, in partnership with Searchlight Capital Partners, bought Frontier's assets in the four states and renamed them Ziply Fiber.
In a presentation to investors last month, which was included in a Securities and Exchange Commission filing, Frontier said that a "significant under-investment" in fiber "created headwinds that the company is repositioning itself to reverse."
That lack of fiber has led to large-scale subscriber churn for Frontier. Frontier, which primarily competes against Charter Communications, said in its presentation that its internet service was available to 14 million homes, but 11 million of them were still on DSL while the remaining three million were fiber-based.
Prior to filing for Chapter 11, Frontier told investors in its presentation that it would "transform the business from a provider of legacy telecom services over a primarily copper-based network to a next-generation broadband-service provider with a long-lived fiber based infrastructure." Frontier has said it's considering new fiber build outs to about 3 million households by spending $1.4 billion through 2024.
Frontier accrued a large chunk of its debt load from doing wireline deals with Verizon and AT&T. Five years ago, Frontier bought Verizon's wireline operations in California, Florida and Texas for $10.5 billion. In 2010, Frontier purchased Verizon's rural wireline assets in 14 states for $6.8 billion. Later, Frontier purchased AT&T's Connecticut wireline operations for $2 billion.
Frontier has been plagued by integration issues in the former AT&T and Verizon properties, and its customers have been vocal about their service issues.