Connect with Over 22% YTM from Frontier Communications, Bonds Mature April 2022

This week, Durig Capital takes a take a look at a company that provides communications providers for shoppers and companies throughout the U.S. Frontier Communications has spent most of 2018 making progress on its transformation initiatives which are designed to scale back costs, improve profitability and enhance the stability sheet. The company lately launched its fourth quarter and full yr results for 2018. The company is displaying progress on its initiatives.

  • Complete fourth quarter income of $2.12 billion, secure sequentially.
  • Adjusted EBITDA for the fourth quarter of $895 million, a sequential improve over third quarter.
  • Fourth quarter operating free cash circulate of $358 million.
  • Full yr operating free cash stream of $620 million.
  • Curiosity protection for fourth quarter of 2.2x.

Frontier Communications’ April 2022 bonds are at present trading at a big low cost, giving them an impressive yield-to-maturity of about 23%. These bonds present buyers with a superb alternative for diversification into the essential service of internet connection. Contemplating Frontier’s strong free cash stream and wonderful curiosity coverage, these 2022 bonds make a perfect addition to Durig Capital’s Fastened Revenue 2 (FX2) Excessive Yield Managed Revenue Portfolio, which historically, has achieved nicely in a rising rate of interest setting, proven under.

Fourth Quarter and Full Yr Results

Frontier Communications posted strong outcomes for its fourth quarter 2018 in addition to its full-year 2018. The corporate has spent all of 2018 implementing a Transformation Program to finally make the corporate extra competitive within the marketplace. A number of the highlights from its fourth quarter and full yr outcomes embrace:

  • Fourth quarter internet cash from working actions totaled $603 million, with full yr internet money from working bills registering $1,812 million.
  • Fourth quarter operating free money stream was $358 million, with full yr operating free money move registering $620 million.
  • Average revenue per customer (ARPC) for fourth quarter was $86.05, a rise both sequentially and relative to the fourth quarter 2017.
  • Within the fourth quarter, Frontier either retired or bought (on the open market) a total of $487 million in debt.
  • Adjusted EBITDA for the fourth quarter was $895 million, as in comparison with $878 million within the third quarter 2018, a sequential improve of two% over the earlier quarter.
  • Frontier has posted impressive LTM (final twelve months) free money stream for all 4 quarters of 2018.

By way of the company’s transformation initiatives, Frontier is concentrating on a $500 million EDITDA profit by the top of 2020. Daniel McCarthy, Frontier President and CEO alluded to those efforts in the firm’s most recent earnings release. “We continued to expand the scope of initiatives underway in our transformation program in the fourth quarter, and multiple teams are now scaling a range of solutions that were developed through the transformation initiatives. I look forward to continued progress and expansion of the program over the course of 2019 and 2020 as we advance toward our targeted $500 million EBITDA benefit.”

Frontier’s newest investor presentation illustrates the company’s strong 2018.

(Supply: Frontier Communications Investor Replace, Fourth Quarter 2018)

Concerning the Issuer

Frontier Communications Corporation (NASDAQ: FTR) is a pacesetter in offering communications providers to city, suburban, and rural communities in 29 states. Frontier provides quite a lot of providers to residential clients over its fiber-optic and copper networks, including video, high-speed internet, superior voice, and Frontier Safe® digital protection options.  Frontier Business provides communications options to small, medium, and enterprise companies.

Internet Entry: An Important Service for Shoppers and Businesses

In at present’s trendy society, access to the web by way of broadband or cable is important. Web entry has touched almost each facet of life. It has allowed many people to work remotely to earn their dwelling. It provides entry to seemingly unlimited amounts of data. It allows us to shop for the whole lot from clothes to meals and every thing in between from the comforts of our house. It provides college students entry to research and online educating. It brings leisure into our houses. The truth is, at the end of 2016, the nation of Canada declared broadband internet is a primary telecommunications service. Demand for entry to the web, and access with larger capabilities and larger speeds, will only continue to develop. Corporations like Frontier might be essential to assembly these calls for.

The truth is, in mild of the persevering with declines in voice and cable utilization, and with more issues shifting on-line by way of the internet, Frontier has lately been targeted closely on enhancing its web offerings. In October 2018, it rolled out its gigabit service (downloads for patrons of 1 gigabit per second) to clients in its FiOS and Vantage Fiber markets. It also lately unveiled its Frontier Simply Wi-Fi Safe service to small and medium sized companies. This service supplies small to mid-sized businesses with a safe, fully-managed wireless community and in addition presents real-time analytics on the purchasers and friends who hook up with it. One of many indicators that traditional cable TV service is in decline is the rising variety of individuals using streaming providers to observe television.

Current Bond Issuance Transaction

Inside the final week, Frontier announced that it intends to offer $1.650 billion combination principal of first lien secured notes due 2027 in a personal transaction. The corporate intends to make use of proceeds to refinance two phrases loans into senior secured debt. This refinancing will take $1.65 billion in debt that’s at present due in 2021 and move it to 2027. This transaction provides Frontier time to continue to pay down its debt and search for options for its debt that matures in 2022.

Curiosity Coverage and Liquidity

Curiosity protection is a vital metric for buyers / bondholders as a result of it is a sign of the company’s means to cowl curiosity funds for its present debt. For its most up-to-date quarter (This fall 2018), Frontier Communications had working revenue (with out the consequences of non-cash depreciation and impairment expenses) of $860 million, and curiosity expense of $388 million, leading to an curiosity coverage of 2.2x.

When it comes to liquidity, as of December 31, 2018, Frontier had cash and money equivalents totaling $354 million. As well as, the corporate has $575 million out there on its credit score revolver, resulting in complete liquidity of $929 million.


The danger for bondholders is whether Frontier can proceed to make progress on its transformation initiatives, growing revenues and profitability, while decreasing debt. The corporate has stabilized its revenues over the past 4 quarters and has made a shrewd move refinancing its 2021 debt to be able to purchase time and permit its initiatives to take hold. The corporate is producing wholesome free cash movement which ought to help with the corporate’s aim to scale back debt and enhance its stability sheet.  Based mostly on Frontier’s current wins, it appears that the about 23% yield-to-maturity on these April 2022 bonds outweighs the dangers identified.

Usually, bond costs rise when rates of interest fall and vice versa. This impact tends to be extra pronounced for decrease couponed, longer-term debt instruments.  Any fastened revenue safety bought or redeemed prior to maturity may be topic to a achieve or loss. Greater yielding bonds sometimes have lower credit scores, if any, and subsequently involve greater degrees of danger and will not be appropriate for all buyers.

Summary and Conclusion

Web access has turn into a needed service in our modern-day society. It has brought unprecedented convenience and entry to the world round us. Frontier Communications has built itself on providing entry to this and other providers inside its suite of services. The company appears to have stabilized its revenues in 2018 and appears to be on the cusp of increasing its revenues and profitability by means of its transformation initiatives. With the current refinancing of its 2021 debt, the company has positioned itself to deal with its further debt coming due in 2022. Its April 2022 debt, couponed at 8.750%, is at present trading at a big low cost, resulting in a powerful yield-to-maturity of about 23%. Given Frontier’s admirable progress on its initiatives, the superb yield-to-maturity on its 2022 bonds makes them a perfect for extra weighting in Durig Capital’s Fastened Revenue 2 (FX2) Excessive Yield Managed Revenue Portfolio, shown above.

Issuer: Frontier Communications Corp.
Ticker: (NASDQ:FTR)
Coupon: 8.750%
Scores: Caa1 / CCC+
Maturity: 04/15/2022
Pays: Semi-Annually
Yield to Maturity: ~ 23%

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About Durig Capital

Durig Capital offers buyers with a specialised, transparent fiduciary service at a really low value. Our FX2 (Discretionary Management) Portfolio over time has tremendously outperformed our FX1 (Non-discretionary) Portfolio, giving significantly larger (at occasions double) the returns of FX1. Our professional service allows access to a broad spectrum of bond, excessive yields, and lower cost factors which might be typically found in much less environment friendly markets, however not evidenced in lots of bond providers.

Most of our shopper accounts are custodied in their own identify at TD Ameritrade Institutional, a big low cost service supplier that’s SPIC insured, or at Interactive Brokers. We now have now started offering our highly profitable FX2 service to shoppers of other Registered Investment Advisors by means of segregated accounts at TD Ameritrade. Please ask us to find out how this may be just right for you and your present advisor.

Disclosure: Durig Capital and sure shoppers might maintain positions in FTR’s April 2022 bonds.

Disclaimer: Please notice that each one yield and worth indications are shown from the time of our analysis.  Our stories are by no means a suggestion to purchase or sell any security. We aren’t a broker/supplier, and studies are meant for distribution to our shoppers. The excessive yield strategies introduced on this evaluation by Durig Capital is probably not appropriate for all buyers.  This isn’t funding recommendation from Durig Capital, nor a selected suggestion to purchase or promote securities. If in case you have any questions or considerations about its suitability on your private investment, you must seek particular investment recommendation from a registered professional before investing determination.

We monitor hundreds of bond issues and their underlying fundamentals for months, typically years, earlier than discovering any that obtain or surpass the targeted standards we’ve got found to be successful.  Our principal priority is to offer the perfect alternatives for our shoppers.  Our bond evaluations are first distributed to our shoppers, then revealed on our website and our free e mail publication, and lastly on the Internet and distributed to hundreds of prospective shoppers and competitive companies. Bond alternatives will not be revealed if they have very restricted availability or liquidity, or seen as not being in one of the best pursuits of our shoppers. When excessive yielding bonds with enhancing fundamentals are acquired at lower costs, Durig Capital believes that buyers will respect incomes greater incomes with our superior high revenue, low value, fiduciary providers.

To study extra about this bond name our fastened revenue specialist at (971) 327-8847

All the time placing your interests first,

Randy Durig
Registered Funding Advisor
DIR  971-732-5119

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