Frontier Communications: Refinancing Debt

On March 12, 2019 publicly traded telecom company Frontier Communications (FTR) announced its intention to raise $1.65 billion in “First Lien Secured Notes”,  due in 2027. The proceeds from the new debt will be used – amongst other purposes – to refinance “all outstanding indebtedness under its senior secured term loan A facility, which matures in March 2021”.  Oaktree Strategic Income (OCSI) is the only public BDC with exposure to Frontier Communications, all in the 3/31/2021 term loan A facility. Total outstandings at cost are $2.859mn and were valued at December 31, 2019 at $2.780mn. No date for the closing of the refinancing has been set, which could occur in the IQ of 2019 or the IIQ. OCSI should book an immaterial increase in value and lose an asset earning only LIBOR + 2.75%, or slightly over 5% per annum. This is a recent loan for OCSI, which only began lending in the IIIQ of 2018 under the new Oaktree management.

Envocore Holding, LLC: Equity Written Down

Closely-held Envocore Holding, LLC – about which very little is known from the public record – saw its preferred stock written down by both of its BDC lenders: Alcentra Capital (ABDC) and OFS Capital (OFS). Moreover, on its March 12, 2019 Conference Call, ABDC explained that the unrealized loss was due to the company “missing earnings for a variety of reasons”. The lenders are said to be working closely with the sponsor and management. ABDC added Envocore to its recently established Watch List.

We have also added the company to the BDC company under-performer list as of the IVQ 2018, based on the equity write-down and that sliver of an update from ABDC and the sector in which the company operates (see below). Our rating is CCR 3, or Watch List. Total exposure at cost as of the end of 2018 is $37.1mn and consists of first lien debt, preferred and common, about equally divided. The potential income at risk is $4.2mn.

By the way: “Founded in 1991, Envocore Energy Solutions is the leading provider of custom energy (lighting & water) efficiency services to Energy Service Companies and utility clients. The Company acts as a sub-contractor to the Energy Service Companies and utility companies and will perform design, engineering and installation. The Company is based in Gambrills, MD“.