April 16, 2020

Frontier, originally Rochester Telephone Company, filed for Chapter 11 Bankruptcy this week. Frontier provides TV, internet, and phone services to both business and residential customers across 29 states. Current service to these customers should be uninterrupted, though there may be a decline in customer service.  You might wonder, how will this affect me, and what exactly does this all mean?

If you are a shareholder of Frontier (FTR):

  • Shares are currently trading at $0.26 per share. It’s possible that common stock can receive some value in a Chapter 11 bankruptcy, we don’t expect that in Frontier’s case. You’re shares will probably end up worthless.

If you are a bondholder of Frontier:

  • You may get a small settlement, but Frontier’s bonds have little value at this point.

Employment in the Rochester area:

  • Frontier employs roughly 1,800 in the Rochester area, and we don’t expect large cuts yet. But in any bankruptcy job losses are common.

Why did this happen?

  • While most major phone companies sold off their traditional wire phone lines, Frontier bought many of those customers, using borrowed money towards buying. Frontier management apparently expected big cash flow from this move, but their bet turned out wrong – very wrong.

Through the chapter 11 bankruptcy, Frontier is seeking to restructure its agreement with about 75% of its bondholders. In plain English, Frontier is asking its lenders to reduce the amount they owe. Their goal is to reduce debt by about $10 billion. Frontier’s finance chairman says “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.” Sounds like he’s reading from a page in the Corporate Nonsense Playbook. Frontier’s management spent the last 10 years squandering borrowed money to buy phone businesses that now have very little value, without prioritizing the repayment of debt or investment in their core business. Why should anyone think they’re any smarter now? We don’t. RIP Frontier.

Nicholas E. Fischer

Financial Advisor

Direct: 585.340.2200

Email: nfischer@brightonsecurities.com