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Plug Into 27% YTM with Frontier Communications, Bonds Mature April 2022

This week, Durig Capital ventures into the telecom area to take a look at one of many country’s major telecommunications providers suppliers. Frontier Communications (NASDAQ: FTR) has been working exhausting to rework itself as cable, voice and web usage continues to vary and evolve. The company’s most up-to-date quarter highlights some of its progress in addition to actions Frontier is taking to stay competitive.

  • For the first quarter, internet money offered from working actions was $282 million.
  • Regardless of headwinds in some of its legacy income producers, Frontier’s revenues for the quarter have been primarily flat, a win considering the company’s decreased buyer rely.
  • Frontier has accomplished / introduced a couple of vital asset gross sales that may usher in over $1.four billion in money when completed to assist improve liquidity and reduce debt.
  • Through the first quarter, the company issued $1.65 billion in senior notes and used the proceeds to successfully clear any debt maturities by way of 2021.

Frontier also continued to make progress on its $500 million EBITDA transformation, hitting its $35 million annualized aim within the first quarter. The corporate’s 2022 bonds are at present trading at a deep low cost, giving them a monster yield-to-maturity of about 27%, which makes them splendid for extra weighting in Durig Capital’s Fastened Revenue 2 (FX2) Excessive Yield Managed Revenue Portfolio, the aggregated efficiency of which is proven under.

Evaluation of Frontier’s First Quarter 2019 Outcomes

Frontier lately posted its first quarter results. Whereas the company did not understand throughout the board enhancements, there were some shiny spots.

  • First, despite the fact that customer counts are down, Frontier’s first quarter revenues have been primarily flat year-over-year, with complete revenues of $2.10 billion compared to $2.12 billion in the prior yr period.
  • Internet money offered from operating activities for the first quarter of 2019 was $282 million.
  • First quarter Common Revenue Per Buyer (ARPC) of $89.14 represents a sequential improve from fourth quarter.
  • Frontier retired the outstanding $348 million principal quantity of senior unsecured notes, maturing March 15, 2019, as scheduled.

Dan McCarthy, Frontier’s CEO reiterated the corporate’s focus throughout its most up-to-date earnings name. “Our goal is to improve the legacy revenue headwinds and accelerate newer product revenue trends, while remaining focused on our long-term goals of improving unit trends, realizing our transformation program targets, driving free cash flow, and reducing leverage.”

Concerning the Issuer

Frontier Communications Corporation (NASDAQ: FTR) is a pacesetter in providing communications providers to urban, suburban, and rural communities in 29 states. Frontier presents quite a lot of providers to residential clients over its fiber-optic and copper networks, including video, high-speed internet, advanced voice, and Frontier Secure® digital protection options. Frontier Enterprise gives communications solutions to small, medium, and enterprise companies.

Current Asset Gross sales

Current asset gross sales have helped to shore up Frontier’s liquidity as well as handle some of its debt. The company has just lately closed on one asset sale whereas additionally saying a second, major asset sale. As introduced in the final quarter’s conference call, Frontier bought almost 100 wi-fi tower belongings for $76 million to Everest Infrastructure Companions. This transaction closed in January of this yr. The larger sale was revealed inside the final month with Frontier saying it’ll sell its belongings and operations within the northwest U.S., together with Washington, Oregon, Idaho and Montana, to Wave Division Capital and Searchlight Capital for $1.35 billion in money. The transaction has been touted by Frontier as one that may help scale back the company’s debt and improve its liquidity. Using asset sales has been a method for the company to enhance its stability sheet. Frontier additionally lately restructured some of its debt.

Debt Extensions

In the course of the first quarter, Frontier made progress on quite a lot of fronts with regard to its stability sheet. In March, the company issued $1.65 billion senior secured notes, maturing 2027. With the proceeds from this transaction, the company retired its main time period loan facility as well as a further smaller mortgage facility. Due to this, the corporate was capable of prolong out almost $400 million in amortization funds that may have been due over the subsequent two years, in addition to prolong the rest of the maturity from 2021 to 2027. Frontier also expanded its $850 million revolver to 2024 (initially due in 2022).  The next graphic exhibits the company’s progress on its capital structure.

Elevating EBITDA –Frontier’s Transformation Initiative

Frontier has been taking steps to drive $500 million in EBITDA by the top of 2020. These enhancements are expected to return from revenue enhancements (business and shopper) like enhancing subscriber tendencies, accelerating progress via new channels and subsequent gen products. Improvements may also come from operational enhancements (decreasing network costs, growing automation) as well as financial savings from care / technical help. For the primary quarter of 2019, Frontier achieved its aim of realizing a cumulative $35 million in annualized profit achieved as of the top of the quarter. In complete, the company’s transformation initiative is concentrating on $200 million in EBITDA run-rate improvements by the top of this yr.

The Join America Fund

Based on the Federal Communications Fee (FCC), broadband access is not only a luxury, however is a necessity for citizens and shoppers dwelling within the U.S. with a purpose to take part absolutely within the financial system and society. In mild of this belief, the FCC has adopted modifications to its Universal Service Fund (USF) to accelerate the build-out of broadband service to the hundreds of thousands of People who are primarily situated in rural, distant areas. These areas are sometimes too expensive for personal capital build-outs to deliver the required infrastructure needed to ship broadband service. With the CAF program, native carriers bid on the telecom subsidies offered by the FCC, then are tasked with rolling out the service with FCC necessities relating to velocity and timing.

Frontier Communications is among the telecom suppliers collaborating on this program. In the first quarter of this yr, the corporate added approximately 10,000 places for a complete of 496,000 places. Although winter climate slowed a few of the progress in CAF build-outs, the corporate expects things to select up now that spring has arrived. The Join America Fund is now in part II, with $1.5 billion in funding, and Frontier receiving $283.four million. Listed here are how the funds have been divided so far for part two.

Interest Coverage and Liquidity

If an organization / issuer has sufficient curiosity coverage, it simply signifies that an issuer’s working revenue is enough to cowl its curiosity costs for its excellent debt. For its most recent quarter, Frontier had operating revenue (with out the consequences of non-cash depreciation and amortization) of $823 million and interest expense of $379 million, for an curiosity coverage 2.2x. When it comes to liquidity, as of March 31, 2019, Frontier had money available of $119 million and $475 million obtainable on its revolver, for complete liquidity of $594 million.


The danger for bondholders is tied to Frontier’s means to stabilize and then drive revenue progress along with decreasing its debt. The company appears to have stabilized revenues for now and is constant to look for next gen product choices as well as make progress on its $500 million transformation plan. The sale of its Northwest belongings and operations lately introduced will generate a lot wanted money to beef up liquidity and supply some options for addressing outstanding debt. So the corporate has cleared the slate till 2021, buying time until it needs to access credit markets again. In mild of these developments, it seems the excellent yield-to-maturity of about 27% on these 2022 bonds outweighs the risks identified.

Generally, bond prices rise when interest rates fall and vice versa. This effect tends to be more pronounced for lower couponed, longer-term debt devices.  Any fastened revenue safety bought or redeemed prior to maturity may be topic to a achieve or loss. Larger yielding bonds sometimes have lower credit score scores, if any, and subsequently contain larger levels of danger and will not be suitable for all buyers.

Summary and Conclusion

Frontier Communications is working diligently to continue to evolve in the telecommunications area. It has stabilized revenues, made a couple of sensible acquisition gross sales to increase liquidity and reduce debt and is successfully hitting targets on its $500 million transformation program. The company’s participation within the CAF program will assist add further revenues in the type of federal monies to help provide broadband to just about all shoppers within the U.S. The company’s 2022 bonds are buying and selling at a big discount in the intervening time, which suggests a hefty yield-to-maturity of about 27%. Given Frontier’s diligence and persistence in its progress in the direction of its objectives, these wonderful yielding 2022 bonds are perfect for further weighting in Durig Capital’s Fastened Revenue 2 (FX2) Excessive Yield Managed Revenue Portfolio, proven above.

Issuer: Frontier Communications Corp.
Ticker: (NASDAQ: FTR)
Coupon: eight.750%
Scores: Caa1 / CCC+
Maturity: 04/15/2022
Pays: Semi-Yearly
Worth:  65.10
Yield to Maturity: ~ 27.14.%

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About Durig Capital

Durig Capital supplies buyers with a specialised, transparent fiduciary service at a very low value. Our FX2 (Discretionary Administration) Portfolio over time has drastically outperformed our FX1 (Non-discretionary) Portfolio, giving significantly larger (at occasions double) the returns of FX1. Our professional service allows entry to a broad spectrum of bond, high yields, and lower cost factors which are typically found in less environment friendly markets, but not evidenced in lots of bond providers.  Most of our shopper accounts are custodied in their own identify at TD Ameritrade Institutional, a large low cost service provider that’s SPIC insured, or at Interactive Brokers. We have now now began providing our extremely successful FX2 service to shoppers of different Registered Funding Advisors by way of segregated accounts at TD Ameritrade. Please ask us to find out how this may be just right for you and your current advisor.

Disclosure: Durig Capital and certain shoppers might hold positions in Frontier’s April 2022 bonds.

Disclaimer: Please word 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/vendor, and studies are meant for distribution to our shoppers. The excessive yield strategies introduced on this evaluation by Durig Capital is probably not suitable for all buyers.  This isn’t funding recommendation from Durig Capital, nor a selected suggestion to buy or sell securities. If in case you have any questions or considerations about its suitability in your personal funding, you must search particular funding advice from a registered professional before investing choice.

We monitor hundreds of bond issues and their underlying fundamentals for months, typically years, before discovering any that achieve or surpass the focused criteria we’ve got found to achieve success.  Our important precedence is to offer the perfect alternatives for our shoppers.  Our bond critiques are first distributed to our shoppers, then revealed on our website and our free e-mail publication, and lastly on the Web and distributed to hundreds of prospective shoppers and aggressive companies. Bond alternatives will not be revealed if they’ve very limited availability or liquidity, or seen as not being in one of the best interests of our shoppers. When excessive yielding bonds with enhancing fundamentals are acquired at decrease costs, Durig Capital believes that buyers will respect earning greater incomes with our superior excessive revenue, low value, fiduciary providers.

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

All the time placing your interests first,

Randy Durig
Registered Investment Advisor
DIR  971-732-5119

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