Frontier Communications announced plans to offer up to $6.6 billion aggregate principal amount of senior notes in a private transaction.
The Norwalk, Conn.-based company said it intends to use the proceeds from the offering toward its previously announced acquisition of a number of Verizon Communication wireline assets in three states.
The Federal Communications Commission on Sept. 2 approved Verizon’s sale of its local wireline network assets and operations in California, Florida and Texas to Frontier Communications for $10.54 billion. The transaction is expected to close by the end of first-quarter 2016.
In a statement, Frontier said the offering’s net proceeds will be placed in an escrow account to partially fund the acquisition. If for some reason the deal falls through or is not closed by Aug. 6, 2016, Frontier will redeem the notes at par plus accrued interest.
Moody’s Investors Service was bullish on the news of the offering. In a press release, Moody’s said it had assigned a Ba3 rating to Frontier’s new senior unsecured notes. The rating, Moody’s said, reflects Frontier’s “large scale of operations, its strong and predictable cash flows and high margins.”
Moody’s also noted that once the acquisition closes, Frontier will have dramatically improved its scale and acquired “valuable” assets that are strongly positioned compared to the incumbent cable competitors. However, Moody’s also cautioned that Frontier is still dealing with a weak revenue trend and may not have the discipline to continue to invest as needed in modernizing its network.
Ultimately, the acquisitions are expected to double Frontier’s revenue to more than $11 billion while adding nearly 6.1 million additional households and about 2.2 million additional broadband connections.
Overall, Moody’s views the deal as positive to Frontier’s cash flow profile given the high margins of the acquired wireline business and the high penetration of FiOS within the footprint resulting in favorable capital intensity.
