Five years after $10B Verizon deal, Frontier enters bankruptcy
Frontier Communications filed for bankruptcy protection from creditors on Tuesday night as a last-ditch recourse to eliminating debt coming due, more than five years after acquiring Southern New England Telephone territory in Connecticut only to take on a crippling amount of debt in a subsequent deal.
Control of Norwalk-based Frontier would shift from shareholders to creditors holding unsecured debt that would be converted into equity shares, according to Frontier’s filing in the U.S. Bankruptcy Court for the Southern District of New York which entered the company’s petition at 10:30 p.m.
In a subsequent statement, Frontier stated it would continue service uninterrupted to its 4.1 million customers, with the company one of the largest telephone, broadband and TV providers in the country with service in 28 states in addition to its home turf covering most of Connecticut.
Frontier cut 830 jobs in the final three months of 2019, bringing to nearly 2,900 jobs its total reduction for the year and to an even 10,000 its total separations since April 2016.
In its petition for bankruptcy protection covering more than 100 subsidiaries subject to judicial assent, Frontier lists total debt of $21.9 billion — categorizing $17.5 billion of that amount as debt for which it is liable — against assets of $17.4 billion. Frontier stated it has agreements in place from roughly three of every four bondholders which are not listed by name, with other parties allowed to file dissenting motions as the bankruptcy case proceeds.
BlackRock is Frontier’s largest existing stockholder with 9 percent of shares that closed Tuesday with a value of 38 cents apiece, followed by Vanguard Group and Charles Schwab each holding about 6 percent of Frontier’s common stock. Shares last peaked at more than $125 five years ago on an adjusted basis, and topped out at $288 in 1993.
Of unsecured creditors identified by Frontier, the human resources software company PeopleScout is owed the single largest amount at $5.7 million, followed by litigants in a class-action wage lawsuit in California to whom Frontier lists debt of $4.7 million as a result of a settlement. Of Connecticut-based companies — excluding any unnamed bondholders — the Southington building heating and air conditioning contractor F.J. Hubeny has the biggest amount outstanding from Frontier at about $540,000.
In its filing, Frontier states those holding general unsecured claims will be “paid in full, reinstated, or otherwise unimpaired” in its words, with the company reserving 6 percent of its newly recalculated equity shares outstanding for the purpose of “post-emergence management incentive” plan in its words to compensate executives.
AT&T is third on the list of the largest unsecured creditors with a $2.6 million claim, with Frontier having acquired the New Haven-based SNET operations in 2014 from AT&T for $2 billion in a deal hatched by former CEO Maggie Wilderotter. Frontier would spend the following several months attempting to repair strained relations with some Connecticut customers, after bungling elements of the switch-over 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 to homes, but Frontier was forced to limit its outbound marketing efforts as it again vexed its existing customer base with outages and shoddy call center service.
With Wilderotter taking retirement on the heels of that deal and moving to California to run a family vineyard startup, successor CEO Dan McCarthy was unable to point Frontier revenue onto an upward trajectory, with the company absorbing a $5.9 billion loss in 2019.
In its bankruptcy petition, Frontier blames its woes on the emergence of fiber as a superior alternative to historic copper networks, while addressing its failure under McCarthy in extracting profits from the FiOS networks bequeathed it in Wilderotter’s Verizon deal. Under McCarthy and before him Wilderotter, Frontier was otherwise late reaching a decision to string fiber directly to customers as it has began doing only recently in Connecticut, New York and several other states with its Vantage fiber offering, with its limited cash forestalling any broader fiber installations.
Frontier receives ongoing subsidies from the Federal Communications Commission via the Connect America Fund designed to increase broadband access for rural households.
McCarthy was replaced in December with former Dish Network executive Bernie Han, who intensified negotiations with creditors in January about options that included bankruptcy. For a newly created executive vice president role leading strategic planning, Frontier has retained an FTI Consulting restructuring expert in Chicago named Carlin Adrianopoli who previously shepherded RadioShack through bankruptcy.
“Serving the new territories proved more difficult and expensive than the [company] anticipated, and integration issues made it more difficult to retain customers,” Adrianopoli stated in a filing accompanying Frontier’s bankruptcy petition. “Frontier has not been able to fully realize the economies of scale expected from the ... [transactions], as evidenced by a loss of approximately 1.3 million customers.”
Missed opportunitiesFrontier expects to shed more at the end of this month via the $1.35 billion sale of territories in Washington, Oregon, Idaho and a sliver of Montana to a Seattle cable entrepreneur, with additional divestments possible as it moves ahead in bankruptcy.
Adrianopoli indicated McCarthy, Han and the board of directors under chair Pam Reeve considered additional asset sales, but that “each presented implementation issues” in his words without fully extricating Frontier from its mountain of debt.
Frontier has chosen to bypass other newly emerging opportunities, such as mobile telephone service now offered by cable broadband rivals Stamford-based Charter Communications, Altice USA and Comcast, which as a group provide service across much of Connecticut; or launching any major foray into streamed content, as the case with Comcast which on Tuesday unveiled its Peacock streaming service featuring new series from NBCUniversal.
Frontier’s collapse came even as the larger industry demonstrated its crucial utility in the past month, as businesses and schools resorted to remote operations as the novel coronavirus COVID-19 pandemic forced closures globally.
“Frontier understands the importance of its network services during these times, and the [company] remains committed to keeping customers connected, safe and informed,” Adrianopoli stated. “Given the unprecedented and evolving nature of the pandemic and the [swift-moving ]response from multiple levels of government, the impact of these changes ... are uncertain at this time.”
From Global Crossing to FrontierThe bankruptcy filing marks a new low for the company that traces its SNET roots to the dawn of the communications revolution created by the telephone, with its antecedents in the New Haven District Telephone Co. founded in 1878 as the world’s first exchange less than a year after Alexander Graham Bell placed the first telephone call in New Haven.
Frontier’s corporate roots trace to Citizens Utilities, which was formed in Minnesota during the Great Depression as the electricity industry underwent deregulation. Citizens refocused its attention on the telecommunications sector after the momentous 1984 breakup of AT&T’s monopoly and subsequent further deregulation of the industry in 1996 that brought about a surge in upstart carriers and by extension a new communications revolution underpinned by widespread access to the Internet.
Under its New Canaan CEO Leonard Tow, successor company Citizens Communications acquired the Frontier brand from Global Crossing on the cusp of the latter company’s collapse, then under Wilderotter rolled out the Frontier brand nationally in 2008. Two years later, Frontier would double in size with the first of two Verizon transactions that in 2010 landed it former territories of GTE, which at one point had been based in Stamford where Frontier had its headquarters before relocating to Norwalk the year after the SNET acquisition.
Frontier’s bankruptcy would rank among the larger such proceedings in the history of the telecommunications history, if the company wins approval in swapping out more than $10 billion in debt for new shares. Worldcom set the mark in 2002 in the $103 billion bankruptcy after cooking the books, eclipsing Global Crossing’s $30 billion dissolution at the start of that year after a massive investment in long-haul fiber optic networks it could not support.
Updated from an initial version posted on April 14.
Alex.Soule@scni.com; 203-842-2545; @casoulman