After many months of delay – and ten prior articles from the BDC Credit Reporter – Frontier Communications (ticker: FTR) is going to file for Chapter 11 and that’s a Good Thing for the three BDCs and the $35.1mn in debt they have outstanding to the telecom company. We’ve reviewed the various restructuring plans that management and creditors are hashing out. All include provisions for the secured debt of Frontier to be repaid with….more secured debt. This debt will have new maturities but seemingly identical pricing. All BDC exposure is in the secured debt in various forms.
Below the current secured lenders there is $10bn of unsecured debt. At a stroke, that debt is going to be swapped into equity and lenders will become owners while the current public shareholders will be wiped out, or pretty much so.
For the BDCs involved – who’ve continued to value their positions at a premium through the seemingly endless restructuring negotiations this should be a positive outcome as the restructured and relaunched Frontier Communications – when the telecom emerges from Chapter 11 – will be much less leveraged: two-thirds off (see page 34 of the slide deck).
Down the road, we may even be able to remove the company from the under performers list, but we’re not getting ahead of ourselves. First, FTR has to actually file Chapter 11 (tentatively set for April 14). Then, Frontier has to emerge therefrom which – even with a pre-agreed plan in place- is not so straightforward in the current environment. Most difficult of all, the company has to successfully re-invent itself. We won’t get into everything Frontier has been and will need to become, but look at the company’s slides 15-17 for an idea of the strategic challenge involved.
All in all, though, for the BDCs involved – our principal concern – this is a likely positive outcome when those are in short supply right now. This is hardly the end of the Frontier Communications story on these pages, but maybe – to quote Winston Churchill – “the end of the beginning” ?