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June 10, 2020

PURA: Too soon to rule on Frontier’s $10B restructuring plan

HBJ Photo The Frontier building in downtown Hartford.
By Matt Pilon

Connecticut’s utilities overseer says it won’t act to approve or deny Frontier Communications’ restructuring proposal until the plan is firmed up.

On Tuesday, the Public Utilities Regulatory Authority (PURA), issued an interim decision dismissing a petition from the heavily in-debted Frontier, which has been in Ch. 11 bankruptcy proceedings since April, seeking approval of its change in ownership. 

PURA said the company’s proposal, which aims to eliminate $10 billion in debt from its balance sheet by converting senior notes into equity common stock, is not yet “ripe for review,” as Frontier’s plan could change as a result of its ongoing bankruptcy court case in Delaware. PURA dismissed the petition without prejudice, saying Frontier could file a new petition when it can demonstrate its restructuring plan is more concrete.

Because it provides landline telephone service, which, unlike internet and cable television service, is a state-regulated public utility, Frontier will need Connecticut’s permission in order to emerge from bankruptcy, which it hopes to do in August. 

In a statement Wednesday, Frontier spokesperson Brigid Smith said the company disagrees with PURA's decision to delay review of the organizational changes, noting that the plan is supported by three-quarters of the company's bondholders, which is more than the minimum required by U.S. bankruptcy code.

Smith said the plan is "firmly on a path for approval" by the court in early August, adding that Frontier will keep PURA updated as other court milestones are met over the coming few months so that it can emerge from bankruptcy "as soon as possible."

Frontier previously asked PURA to approve its new structure by Sept. 18.

Along with its bankruptcy petition in April, Frontier also filed a pre-negotiated deal it reached with 75% of its senior note holders. If the deal is approved by the court, Frontier would convert more than $10 billion of its debt into common stock in a newly formed parent company called Frontier Communications Holdings. 

The plan would allow the company to deleverage its balance sheet, reducing debt obligations to $6.57 billion, down from more than $17 billion currently, according to documents Frontier filed with PURA.

Much of the debt the company has racked up is related to its acquisition of wireline assets from telecom giants in multiple states, the largest being a $10.5-billion deal with Verizon in 2015. 

Deals also include Frontier’s $2 billion purchase of Southern New England Telephone in 2014, which made the company a statewide player in the landline, internet and cable television markets.

While a pre-negotiated restructuring plan provides some certainty that it will hold up, it’s less firm than a pre-approved plan with creditors, PURA’s decision noted, meaning the terms could still change.

The restructuring plan is “largely administrative” and meant to “optimize tax structure,” Frontier has said, and “would not have negative impacts to Frontier’s management, operations, customers, or employees in Connecticut.”

The company said the plan would allow it to emerge from Ch. 11 as a “stronger, more financially-sound enterprise better positioned to continue to provide high-quality service in the highly competitive telecommunications marketplace.”

This story has been updated to include comment from Frontier.

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