CHANNELS

Subscribe to the InfoTech eNewsletter

infoTECH News

TMCNet:  Fitch Rates Frontier Communications' Proposed $1.55B Note Offering 'BB'; Outlook Stable

[September 03, 2014]

Fitch Rates Frontier Communications' Proposed $1.55B Note Offering 'BB'; Outlook Stable

CHICAGO --(Business Wire)--

Fitch Ratings has assigned a 'BB' rating to Frontier Communications Corporation's (Frontier) (NYSE: FTR) proposed senior unsecured note offering of $775 million due 2021 and $775 million due 2024. Frontier's Issuer Default Rating (IDR) is 'BB' and the Rating Outlook is Stable.

Proceeds from the offering are expected to be used to fund Frontier's acquisition of wireline assets in the state of Connecticut from AT&T (News - Alert), Inc. The transaction is expected to close in the fourth quarter 2014, and until that time the net proceeds will be placed in escrow. Should the transaction not be completed by Aug. 17, 2015, the notes will be redeemed at par, plus interest.

KEY RATING DRIVERS

AT&T Line Acquisition: Frontier has agreed to acquire certain wireline assets in the state of Connecticut from AT&T for $2 billion in cash. Debt mostly funds the transaction, and will lead to an approximate 0.4x increase in Frontier's net leverage. Following the acquisition, Frontier's net leverage is expected to be in the range of 3.7x to 3.8x and will remain elevated over the next couple of years.

Acquisition Improves Scale: Fitch believes the positive aspects of the transaction include the increased scale of Frontier on a post-transaction basis, including improved free cash flow (FCF, defined as net cash provided by operating activities less capital spending and dividends). The assets being acquired will not require material additional capital spending given past network upgrades by AT&T with respect to its U-Verse platform. A moderate amount of addition capital spending will be directed to the upgrade of rural broadband speeds.

Revenue Pressures Slowly Abating: During 2013 and through the first half of 2014, business and residential customer revenue declines have moderated and are approaching stability, although potential headwinds from competitive pressures and the economy remain in place.

Manageable Maturities: Excluding this transaction-related financing, Frontier is not expected to need to access the capital markets to refinance maturing debt through at least 2016. Existing principal repayments of approximately $641 million over 2014-2016 can be managed with cash expected to be on the balance sheet plus FCF.

Liquidity Solid: Supporting the rating is Frontier's ample liquidity, which is derived from its cash balances and its $750 million revolving credit facility. At June 30, 2014, Frontier had $802 million in balance sheet cash. Fitch expects 2014 FCF to be under the $461 million generated in 2013 as a result of lower EBITDA, higher iterest expense and higher cash taxes.

Frontier's expectations for 2014 capital spending-- excluding any spending related to the acquisition --range from $575 million to $625 million, with the mid-point down from the $635 million spent in 2013. Capital spending on fiber-to-the-cell-tower projects will decline in 2014. In 2014, cash taxes are expected to rise to $130 million to $160 million, up from $94 million in 2014.

Credit Facility and Debt Maturities: The $750 million senior unsecured credit facility is in place until May 2018. The facility is available for general corporate purposes but may not be used to fund dividend payments. The main financial covenant in the revolving credit facility requires the maintenance of a net debt-to-EBITDA level of 4.5x or less during the entire period. Net debt is defined as total debt less cash exceeding $50 million.

Frontier has approximately $30 million of scheduled principal repayments due in the remainder of 2014, $263 million due in 2015, and $348 million due in 2016.

RATING SENSITIVITIES

Considerations for a Positive Rating Action:

--Given Fitch's leverage expectations over the next two to three years, a positive action is not anticipated.

Considerations for a Negative Rating Action:

--If net leverage equals or exceeds 4.0x, a Negative rating action could take place.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (May 28, 2014);

--'Rating Telecom Companies - Sector Credit Factors' (Aug. 9, 2012).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Rating Telecom Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682323

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=864014

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.


[ InfoTech Spotlight's Homepage ]


blog comments powered by Disqus

FOLLOW US

Subscribe to InfoTECH Spotlight eNews

InfoTECH Spotlight eNews delivers the latest news impacting technology in the IT industry each week. Sign up to receive FREE breaking news today!
FREE eNewsletter