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Frontier Communications Corporation Message Board

  • divvyrus divvyrus Feb 8, 2012 7:03 PM Flag

    Frontier's debt

    The market is pricing in a rating worse than Windstream, while FTR currently has a rating at or slightly better than Windstream. My conclusion is the debt market is pricing in a ratings cut.

    Furthermore, the coupon FTR is paying for 5 year debt is HIGHER than its notes are yielding that mature 5 years from now - by a little less than 1%.

    To me this implies their borrowing costs on their next refinance - based on current market rates for FTR debt -- MIGHT actually be lower.

    If there's any modest improvement / stabilization in business outlook, this could improve further.

    I am a new shareholder, so perhaps looking at through rose colored glasses. Any one else see it this way? Or am I missing something?

    All eyes on next week's Q4 CC

    thanks

    divvy

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    • "Furthermore, the coupon FTR is paying for 5 year debt is HIGHER than its notes are yielding that mature 5 years from now - by a little less than 1%."

      Let me try again at understanding. Are you referring to the same bond issue? (versus comparing different issues)

      If so, you're simply saying that this bond is currently trading at a premium, meaning that the (bond) market concern about FTR's cash flow/financial situation is only near term and longer term. And, so FTR can refi its debt portfolio to longer term maturites at lower interest cost.

      This is also my personal belief.

    • "Furthermore, the coupon FTR is paying for 5 year debt is HIGHER than its notes are yielding that mature 5 years from now - by a little less than 1%."

      The semantic of "5 year debt" versus notes that "mature 5 years from now) is confusing to me.

      It'll be simpler to discuss these two series in terms of yield to maturity, in which case if the former's ("5 year debt" which matures in less than 5 years) YTM is higher than the latter's YTM, this would suggest a liquidity/cash flow crunch in the nearer term vs the longer (maturing in 5 years) term.

      And, which would be consistent with S&P's recent credit watch warning--which I believe was based on intermediate, integration related concerns.

    • burnaka@sbcglobal.net burnaka Feb 8, 2012 8:01 PM Flag

      Welcome new investor, now you are part of FTR hello.

      Not too knowledgeable about the terms of all their notes, do know they took out a new finance this past Oct. I also know the majority of their debt is unsecured fixed rate loans. With the next two years 500 million due each year, and they are done paying all of 2012 as of this q. So ahead of the game there.

      CTL, win, ftr all have declining revenue. FTR is the leader of the pack. All three have major acquisitions but ftr tripled their size, the other two bought smaller companies. The recent noise from S@P and GS is a red flag about revenue loss.

      FTR management is confident, or so they say, that they can turn this around and grow revenue. They asked for a 3 year time frame, we are at 1 1/2 years. The market has basically said the hell with you, we are not holding shares that long.

      On the positive side, they will announce shortly, in a week, a projected 200-400 additional synergy savings ( my take ) which will at least short term mitigate revenue loss. This should buy them the time to ramp the revenue, if they can. It should also afford them the ability to maintain the dividend as is, if they elect to, which would be the right move for share holders.

      Even if current revenue loss does not decline, but stays at the current horrible rate, they are fine for at least one more year if they can indeed create the 200-400 of savings which will keep pace with the current revenue loss, or at least keep it at bay.

      The price decline is related to tons of things but most of all revenue shortfalls. I doubt it is strongly attached to their refinancing, but that definitely is in there.

      FTR will have no trouble getting 500 million, which is all they may need, based on the fact they will have all 2013 debt ( 500 million) paid off this year. So they can move the 2015 out a few years, they will pay a premium, not based on ratings, but they stick with unsecured debt always at a premium.

      • 3 Replies to burnaka
      • when i first read your post, i saw "Welcome new investor, now you are part of FTR hell".
        i re-read it, but it sounded better the 1st time.
        The price decline is related to tons of things but most of all revenue shortfalls. I doubt it is strongly attached to their refinancing, but that definitely is in there.'
        I agree it's about revenue shortfalls as it impacts their ability to pay off/roll over debt. The whole thing started last summer during the budget crisis, sovereign debt problems, all debt-related. people were freaking out over anything related to debt and ability to pay it.
        I can understand debtholders desire to be paid. but the current dividend was - to my understanding - only planned through 1st half 2102. this was based in part on bonus depreciation, which is being phased out. now, our friendly bankers must think there won't be any FCF beyond that so all of a sudden they decide to beat poor Maggie's lunch-money out of her before she can spend it on something silly like a lunch.
        Point being they're second-guessing management saying they don't believe the plan and they won't wait 'til 2nd half (management missed by a whopping $.007 for two quarters and was going to re-evaluate the plan anyways): we want the money now ('Nice phone company you got here - shame if something were to happen to your credit rating')!
        Between the heavy-handed tactics, the collusion, the double-dealing, you'd think you were dealing with some mob goons here in Chicago.

      • "FTR management is confident, or so they say, that they can turn this around and grow revenue. They asked for a 3 year time frame, we are at 1 1/2 years. The market has basically said the hell with you, we are not holding shares that long."

        Sometimes, the simplest explaination is the truth.

        "Even if current revenue loss does not decline, but stays at the current horrible rate, they are fine for at least one more year if they can indeed create the 200-400 of savings which will keep pace with the current revenue loss, or at least keep it at bay."

        That's my assumption. Therefore, alert shareholders should have time to draw conclusions over next 1-2 quarters whether management is executing according to plan.

      • Thank you burnaka

        Actually, at the last conference call it was announced that almost 500mm of the 600mm in cost savings has already been realized.

        I beg to differ with you about the "price decline is related to revenue short falls".

        In as much as FTR did their original deal with fully disclosed knowledge of declining revenue of the assets purchased, is is not really a likely reason for the share price decline. It is extremely common for a new issue to suffer price declines well below the issue price after a few months, just generally how the market seems operates. This recent share issue/dillution was a particularly large new issue and as such, a particularly sharp run down from that.

        That's all it is really. A bargain.

        You are correct in that FTR has no debt maturities that would be a hinderence to cash flow, at least prior to 2016.


        The rule is "never buy new issues" Never... ever..
        That doesn't make the new issue a poor deal. It's just a rule to stick by because that new issue will go on sale later, for no "business" reason, but rather a "market" reason.

    • Furthermore, the coupon FTR is paying for 5 year debt is HIGHER than its notes are yielding that mature 5 years from now - by a little less than 1%.

      What does that mean?
      FTR is "paying more" for 5 year debt than its 5 year debt is "yielding"?

      What you are saying is that you have to pay a premium for FTR's bonds which would give you a lower yield (which actually don't trade and as such don't sell for a premium)

      You are babbling

      • 1 Reply to mr_lemmmings
      • Probably babbling a bit yes.

        What i meant was their coupon is higher than the current yield.

        And even making it apples to apples compare where the coupon is higher when looking at a 5 year coupon rate versus the yield on a FTR bond that has 5 years left to maturity.

        Yep, babbling again.

        But is still telling me the market thinks FTR today, could roll over "some" debt and get a pretty comparable rate to its current coupon.

 
FTR
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