Frontier Communications Corporation
(
FTR
) plans to issue senior notes worth $500 million that will carry
interest of 9.250% and are due to mature in 2021.
The net proceeds will be utilized to repay a portion of its
8.250% senior notes and 7.875% senior notes to mature in 2014 and
2015, respectively. Moreover, it is also anticipated that any
balance after paying off the respective senior notes, will be used
to fund the company's general expenses or to repay other
outstanding debts.
Moody's ratings agency gave Ba2 ratings to Frontier's proposed
note offering, which comes under speculative non-investment grade
bonds or junk bonds.
Presently, Frontier has plans to strengthen its balance sheet as
well as reduce its leverage (net debt to adjusted operating cash
flow) from 3.18 times to 2.5 times through a combination of EBITDA
improvements, debt reductions and dividend cuts.
In the last reported quarter, Frontier Communications generated
$382.5 million cash flow from operation compared during the quarter
while cash and equivalents were $365.8 million in the first quarter
of 2012. Long-term debt decreased to $7.6 billion from $8.2 billion
at the end of 2011.
The company reduced its annual dividend by 47% to $0.40 per
share in fiscal 2011. It is instead focusing on the repayment of
its debts. Moreover, the company aims to convert its acquired rural
fixed-line from
Verizon Communication Inc.
(
VZ
) into its own systems, which is expected to provide cost synergies
to the company going forward.
However, we believe that issuing senior notes carrying higher
interest rates is mainly driven by mounting interest expense of
$665 million, which the company has paid last year. So, to avoid
such mounting interest expense and to improve its bottom line, the
company has undertaken such measures.
However, we believe that issuing senior notes carrying higher
interest rates is mainly driven by mounting interest expense of
$665 million or 67 cents per share, which the company has paid last
year. So if the company can completely pay off the debt, its EPS
will increase to 83 cents, thereby improving its bottom lin
growth.
Based in Stamford, Connecticut, Frontier Communications
Corporation is a communications company providing offers voice,
high-speed Internet, satellite video, wireless Internet data access
services to rural areas and small and medium-sized towns and
cities.
FRONTIER COMMUN (FTR): Free Stock Analysis
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