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April 15, 2020

Frontier files for Chap. 11 bankruptcy

HBJ Photo The Frontier building in downtown Hartford.
By Natalie Missakian

Frontier Communications, which provides phone, internet and video services in Connecticut and 28 other states, filed for Chapter 11 bankruptcy late Tuesday as part of a restructuring plan that would swap more than $10 billion in debt for equity in the company.

The filing, which has been anticipated for months, comes after years of declining revenues and a dwindling number of subscribers at the Norwalk-based company, as cord-cutting customers abandoned traditional landlines in favor of wireless telephone. 

“Frontier’s Chapter 11 filing is being made on a consensual basis with the agreement of over two-thirds of the company’s unsecured creditors and will result in the company’s debt being reduced by more than 10 billion,” Frontier Chief Legal Officer Mark Nielsen said in an emailed statement to New Haven BIZ. “This will leave Frontier better positioned to invest in network improvement and a better customer experience in Connecticut.”

Under the agreement, Frontier said it also secured commitments for $460 million in debtor-in-possession financing that, combined with more than $700 million in cash on hand, gives the company more than $1.1 billion in liquidity.

Nielsen said service to customers would not be interrupted as a result of the  bankruptcy and that Frontier’s 2,100 employees in Connecticut would not be negatively impacted. 

Shareholders will get nothing out of the deal, as their shares will be zeroed out in favor of new shares issued to Frontier’s lenders. 

In paperwork filed in U.S. bankruptcy court in New York, Frontier said it lost 1.3 million customers between 2016 and January of this year, and its stock price has plunged from $125 five years ago to 37 cents a share as of the time of the filing. Meanwhile, the company’s net losses have grown from $1.8 billion in 2017 to $5.9 billion last year. 

The company blames much of its current predicament on the $17.5 billion in debt it accumulated through a series of acquisitions over nearly a decade, including its $2 billion purchase of the legacy Southern New England Telecommunications Corp. of New Haven from AT&T in 2014. Two years later, the company spent $10.5 billion to acquire Verizon’s wireline operations in California, Florida and Texas.

“Serving the new territories proved more difficult and expensive than the company anticipated, and integration issues made it more difficult to retain customers,” Frontier said in the bankruptcy filing. “Simultaneously the company faced headwinds stemming from fierce competition in the telecommunications sector, shifting consumer preferences and accelerating bandwidth and performance demands.”

In a presentation to investors filed with the U.S. Securities & Exchange Commission last month, Frontier CEO Bernie Han said the company had significantly under-invested in its fiber networks, making it difficult to attract and keep customers in the face of “intense competitive pressure.” 

By reducing its debt load, the company is banking on using the freed up cash to upgrade its fiber networks so it can better compete with cable companies offering high-speed, high-bandwidth internet services. 

The company has outlined a plan to spend $1.4 billion on fiber upgrades through 2024 and bring fiber to 3 million new Frontier customers.

In the bankruptcy filing, the company said it also planned to go forward with a plan to sell its Washington, Oregon, Idaho and Montana operations and assets to Northwest Fiber for $1.35 billion by the end of this month. 

"With this agreement with our bondholders, we can now focus on executing our strategy to drive operational efficiencies and position our business for long-term growth," Han said in a statement.

Han, who replaced CEO Dan McCarthy in December, has also pledged to improve customer service at the company, which has been the target of numerous consumer complaints. 

Connecticut Attorney General William Tong and Consumer Protection Commissioner Michelle Seagull announced last week they were investigating more than 1,000 consumer complaints against the company dating back to 2014. The complaints range from poor service quality and customer service to improper charges and excessive rates. Similar investigations are underway in other states. 

Rich Sobolewski, Connecticut’s acting consumer counsel, whose office represents the state’s utility customers, said his office would be monitoring the proceedings to ensure consumers are not negatively impacted. He said he is also concerned about the telephone poles Frontier owns across the state.

“We don’t think they’ve been doing as good a job as they should be [maintaining them] and whatever happens going forward, we want to make sure someone is going to take care of the poles,” he said.

The restructuring also requires approval by the state’s Public Utilities Regulatory Authority (PURA).

Dave Weidlich Jr., president of the Communications Workers of America Local 1298, which represents Frontier’s workers in Connecticut, said he is hopeful the bankruptcy filing is the first step toward righting the ship at the struggling company. 

“I think the employees are somewhat optimistic that the new CEO is talking about problems and trying to fix them,” he said.

In addition to its Norwalk headquarters, the company houses its eastern region operations center in New Haven.

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