Years after $ 10 billion deal and 10,000 abandoned jobs, Frontier goes bankrupt

0

Frontier Communications filed for bankruptcy against its creditors on Tuesday night as a last resort to eliminate the maturing debt, more than five years after acquiring territory from Southern New England Telephone in Connecticut only to shoulder an amount crippling debt in a subsequent deal.

Control of Norwalk-based Frontier would shift from shareholders to creditors with unsecured debt that would be converted into shares, according to Frontier’s filing with the U.S. Southern District of New York bankruptcy court that filed the company’s petition. at 10:30 p.m.


In a subsequent statement, Frontier said it would continue to provide uninterrupted service to its 4.1 million customers, with the company being one of the country’s largest telephony, broadband and television providers with a service in 28 states in addition to its home territory covering most of Connecticut. The Goldman Sachs group has arranged a $ 460 million “debtor in possession” financing to keep Frontier operating during the bankruptcy process.

Frontier continues to reduce costs and staff, shedding 830 jobs in the last three months of 2019 to bring its total reduction for the year to nearly 2,900 jobs; and at the same 10,000 total separations since April 2016.

In its bankruptcy protection application covering more than 100 subsidiaries subject to judicial approval, Frontier lists a total debt of $ 21.9 billion – categorizing $ 17.5 billion of that amount as debt for which it is responsible – on assets of $ 17.4 billion. Frontier said it has made deals with about three out of four bondholders who are not listed by name, with the remaining parties allowed to file dissenting motions as the bankruptcy case progresses.

BlackRock is Frontier’s largest existing shareholder with 9% of the shares which closed Tuesday at a value of 38 cents each, followed by Vanguard Group and Charles Schwab each holding around 6% of the common stock of Frontier. Stocks last peaked at over $ 125 five years ago on an adjusted basis, and peaked at $ 288 in 1993.

Among the unsecured creditors Frontier identified, human resources software company PeopleScout owes the largest amount at $ 5.7 million, followed by class-action litigants in California to whom Frontier reports debt of $ 4.7 million. dollars as a result of a settlement. Of the Connecticut-based companies – excluding unnamed bondholders – Southington building heating and air conditioning contractor FJ Hubeny has Frontier’s largest assets under management at around $ 540,000.

In its filing, Frontier states that those who hold general unsecured debts will be “paid in full, reinstated or otherwise intact” under its terms, with the company reserving 6 percent of its newly recalculated outstanding equity shares for the purposes of ” post-emergence management incentive ”in its terms to remunerate managers.

Billions for botched takeovers

AT&T is third on the list of largest unsecured creditors with a receivable of $ 2.6 million, Frontier having acquired the New Haven-based SNET operations in 2014 from AT&T for $ 2 billion as part of a deal struck by former CEO Maggie Wilderotter. Frontier would spend the next few months attempting to mend strained relationships with some Connecticut customers, after spoiling elements of the switch to its own systems.

Wilderotter’s subsequent $ 10.5 billion deal with Verizon Communications gave Frontier a new patchwork of systems in California, Texas and Florida that included Verizon’s FiOS fiber optic service for homes, but Frontier has was forced to limit its outbound marketing efforts as it again upset its existing customer base. with outages and poor call center service.

With Wilderotter retiring as a result of the deal and moving to California to run a family-owned wine start-up, successor CEO Dan McCarthy has been unable to steer Frontier’s earnings on an upward trajectory, the company absorbing a loss of $ 5.9 billion in 2019.

In its bankruptcy petition, Frontier attributes its woes to the emergence of fiber as a superior alternative to legacy copper networks, while addressing its failure under McCarthy to reap profits from the FiOS networks bequeathed in the Wilderotter’s Verizon agreement. Under McCarthy and before him Wilderotter, Frontier also belatedly made the decision to thread fiber directly to customers, as it only recently started doing in Connecticut, New York and several other states with its offer. Vantage fiber, with its limited cash flow preventing any wider fiber. facilities.

Frontier receives ongoing grants from the Federal Communications Commission through the Connect America Fund designed to increase broadband access for rural households.

McCarthy was replaced in December by former Dish Network executive Bernie Han, who stepped up negotiations with creditors in January over options that included bankruptcy. For a newly created executive vice president role in charge of strategic planning, Frontier retained a restructuring expert from FTI Consulting in Chicago, named Carlin Adrianopoli, who previously guided RadioShack to bankruptcy.

“Serving the new territories has turned out to be more difficult and more expensive than [company] anticipated, and integration issues made it more difficult to retain customers, ”Adrianopoli said in a filing accompanying Frontier’s bankruptcy application. “Frontier has not been able to fully realize the economies of scale expected from … [transactions], as evidenced by a loss of approximately 1.3 million customers.

Missed opportunities

Frontier expects to lose more at the end of this month via the $ 1.35 billion sale of territories in Washington, Oregon, Idaho and a piece of Montana to a Seattle cable contractor, with divestitures additional possible as it advances in bankruptcy.

Adrianopoli indicated that McCarthy, Han and the board of directors under Pam Reeve’s chairmanship have considered additional asset sales, but that “each presented implementation issues” in his words without completely taking Frontier out of his hands. mountain of debt.

Frontier chose to bypass other emerging opportunities, such as the mobile phone service now offered by Stamford-based Charter Communications, Altice USA and Comcast, which, as a group, provide service across much of Connecticut; or launch a major foray into streaming content, as is the case with Comcast which unveiled its Peacock streaming service on Tuesday with new series from NBCUniversal.

Frontier’s collapse came even as the industry as a whole demonstrated its crucial usefulness over the past month, as businesses and schools resorted to remote operations as the novel coronavirus pandemic COVID -19 forced shutdowns around the world.

“Frontier understands the importance of its network services during these times, and the [company] remains committed to keeping customers connected, safe and informed, ”said Adrianopoli. “Given the unprecedented and evolving nature of the pandemic and the [swift-moving] response from several levels of government, the impact of these changes … are uncertain at this time.

From the global crossing to the border

The bankruptcy filing marks a new low for the company, which traces its SNET roots to the dawn of the communications revolution created by the telephone, with its background in the New Haven District Telephone Co. founded in 1878 as the first stock exchange in the world in less than a year. after Alexander Graham Bell made the first phone call to New Haven.

Frontier’s corporate roots can be traced back to Citizens Utilities, which was formed in Minnesota during the Great Depression as the electricity industry underwent deregulation. Citizens refocused their attention on the telecommunications sector after the break-up in 1984 of the AT&T monopoly and the subsequent deregulation of the industry in 1996 which resulted in an increase in the number of new operators and, by extension, a new revolution. communications supported by widespread Internet access.

Under the leadership of its CEO of New Canaan, Leonard Tow, his successor, Citizens Communications, acquired the Frontier brand from Global Crossing on the cusp of the latter company’s collapse, then, under Wilderotter, a rolled out the Frontier brand nationwide in 2008. Two years later, Frontier would double in size with the first of two Verizon deals that in 2010 landed it former territories of GTE, which at one point was based in Stamford where Frontier was headquartered before moving to Norwalk the year after acquiring SNET.

The Frontier bankruptcy would be among the largest such proceedings in telecommunications history, if the company obtains approval to swap more than $ 10 billion in debt for new stock. Worldcom put the brand in $ 103 billion bankruptcy in 2002 after cooking the books, eclipsing Global Crossing’s $ 30 billion disbandment early that same year after massive investment in long-haul fiber networks. that she couldn’t take care of.

Updated from an initial version released on April 14.

[email protected]; 203-842-2545; @casoulman

Share.

Comments are closed.