Frontier Communications Corp. Ratings Affirmed Following Announced Bond Off Outlook Negative

Stocks and Financial Services Press Releases Thursday March 8, 2018 09:52
NEW YORK--8 Mar--S&P Global Ratings

NEW YORK (S&P Global Ratings) March 7, 2018--S&P Global Ratings today affirmed its 'B-' corporate credit rating, and all other ratings, on Norwalk, Conn.-based Frontier Communications Corp. The outlook is negative. We also removed the ratings from CreditWatch where we placed with negative implications on Feb. 7, 2018.

At the same time, we are assigning a 'B+' issue-level rating and '1' recovery rating to Frontier's proposed $1.6 billion of senior secured-second lien notes due 2026. The '1' recovery rating indicates our expectation for very high (90%-100%; rounded estimate: 95%) recovery in the event of payment default.

The affirmation follows the company's announcement that it plans to tender for a portion of the following debt instruments:
  • 8.875% senior notes due 2020
  • 6.25% senior notes due 2021
  • 9.25% senior notes due 2021
  • 8.5% senior notes due 2020
  • 8.75% senior notes due 2022
  • 10.5% senior notes due 2022
  • 7.125% senior notes due 2023

The outlook is negative and reflects Frontier's weak operating and financial performance. While we expect leverage to be in the mid-5x area over the next year, further execution missteps or underperformance could pressure EBITDA and FOCF more than our current base case forecast. We believe these factors could result in higher leverage, which could render the capital structure as unsustainable, in our view. The negative outlook also incorporates the potential for reduced covenant cushion if operating conditions do not improve.

We could lower the ratings if Frontier is unable to improve gross subscriber additions in the legacy markets and revenue growth in the CTF markets fails to materialize, which pressures FOCF, resulting in higher leverage and diminished headroom under its bank credit facility covenant. We could also lower the rating if the company's financial commitments appeared unsustainable in the long term.

Although unlikely over the next several quarters, a stable outlook or higher rating would be contingent on improvement in operating and financial performance such that the company is able to moderate the rate of revenue and EBITDA declines to the low-single-digit percent area and we believe this trend is sustainable.

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