(Source: Business Wire)
Fitch Ratings has assigned a 'BB' rating to Frontier Communications
Corporation's (Frontier) (NYSE: FTR) proposed offering of $450 million
of senior unsecured debt due 2018. Frontier's Issuer Default Rating
(IDR) is 'BB', and its ratings were placed on Rating Watch Positive
owing to its proposed transaction with Verizon Communications Inc.
(Verizon) (NYSE: VZ) on May 13, 2009.
Frontier plans to the use the proceeds from the proposed offering and
existing cash to tender for up to $700 million of debt. The tender will
be prioritized, and debt subject to the tender includes any or all of
its approximately $641 million of 9.25% senior unsecured notes maturing
in 2011, as well as a portion of its $700 million of senior unsecured
6.25% notes maturing in 2013. The acceptance of the 2013 notes tendered
and not withdrawn is conditioned upon the tender of any and all 2011
notes tendered and not withdrawn.
Frontier's 'BB' rating reflects its strong operating margins and access
to ample liquidity. Its core rural telecommunications operations are
facing a slow but relatively stable state of decline due to continued
pressure of competition and the recessionary economy. The company has
been mitigating the effect of access line losses to cable operators and
wireless providers through the marketing of additional services,
including high-speed data, and through cost controls.
Fitch anticipates that Frontier's gross debt to EBITDA at year end 2009
will be in the 4.0 times (x) to 4.2x range, slightly higher than the
3.9x recorded at year end 2008, due to pressure on EBITDA arising from
recessionary and competitive induced effects, as well as higher non-cash
pension expenses, severance costs and costs related to the acquisition.
Gross leverage on June 30, 2009 was approximately 4.3x on a last
12-month (LTM) basis, as only $308 million of the proceeds from its $600
million April 2009 debt offering had been used to reduce debt in the
second quarter. Cash remaining from the April offering is expected to be
deployed in the proposed tender offer.
In the Verizon transaction, Frontier will merge with a separate company
formed by certain Verizon local exchange assets in 14 states (consisting
of approximately 4.5 million access lines) in a tax-free transaction to
create a large local exchange company. The transaction remains subject
to regulatory and shareholder approvals.
As a result of the potential positive effects of the Verizon transaction
on Frontier's credit profile, Fitch placed the company's 'BB' IDR and
other ratings on Rating Watch Positive.
