As currently filed, the restructuring plan would wipe out current shareholders, who’ve already lost more than 90 percent this year alone. That’s the deal between management and holders of approximately $11 billion of unsecured bonds, who’ll receive 100 percent of newly minted common stock along with $750 million in new bonds and $150 million cash.
Frontier management has promised to protect the jobs of its 18,000 employees, and to keep senior lenders and trade creditors whole. Lenders owed $5.7 billion, however, have already filed objections to a proposed $460 million credit line. And many oppose the size of a $129 million pay package for an investment bank advising on the deal.
f the company’s plan succeeds in something close to its current form, its immediate financial position will be greatly improved. That starts with a $10 billion cut in the $17.5 billion debt load. Throwing in $1.352 billion from the sale of assets in Idaho, Oregon, Montana and Washington, there should be around $2 billion in cash and available liquidity as well.
Unfortunately, even that will do little to address the company’s greatest challenge: The mushrooming loss of customers and revenue at its core wireline communications business.
n the communications sector, keeping up on network quality is critical to survival. But Frontier actually reduced Q1 CAPEX by 6 percent. That’s a pretty clear warning for investors to expect customer losses in the remainder of 2020.
The company shed 7.6 percent of its users in the 12 months ended March 31. That includes 6 percent of broadband customers, 21 percent of video users and 10 percent of commercial clients.
In Part 1 of the notes to the Q1 financial statements, management blames customer losses on “competitors offering more attractive pricing or higher speeds.” That’s pretty fundamental. And it would not be easy to fix, even if Frontier eliminated all debt and deployed the entire $1.5 billion in current annualized interest expense to CAPEX.
In fact, Frontier’s efforts to hold onto customers are likely to be increasingly problematic going forward, as much larger and stronger rivals roll out 5G networks. And unless the company arrests user declines, it’s likely the bondholders-turned-stockholders will be looking for their first good chance to unload after restructuring.