DJ Frontier Lenders Say Prearranged Bankruptcy Could Unravel Dow Jones News6:27 PM Eastern Daylight Time Apr 16, 2020 By Peg Brickley Frontier Communications Corp.'s senior lenders say the telecommunications company's prearranged bankruptcy plan is a "fragile house of cards" that won't stand up in court.
One of the country's largest telecommunications providers, Frontier filed for chapter 11 protection Tuesday in U.S. Bankruptcy Court in White Plains, N.Y., after reaching a deal with three quarters of the investors that own nearly $11 billion worth of its unsecured debt.
With four million customers and operations in 29 states, Frontier has been grappling with the debt it acquired as it expanded its business.
On Thursday, lawyers for lenders owed $5.7 billion took aim at Frontier's proposal to borrow $460 million, a new loan that would be paid off before the lenders' claims.
Brian Hermann, lawyer for a group of senior lenders, said his clients think Frontier doesn't need the money, given the more than $725 million in free cash available now and a sale of Pacific Northwest assets that will bring in about $1.3 billion.
"That's $2 billion which, by any measure, is a lot of cash," Mr. Hermann said at the bankruptcy court hearing.
While it has backing from unsecured bondholders for its bankruptcy plan, Frontier failed to reach agreements with its senior and junior lenders, both of whom rank ahead of bondholders in the order of payment under bankruptcy law.
The top lenders want protections to shore up their position at the top of the Norwalk, Conn., company's capital structure.
Frontier says the top lenders' money is safe and only the shareholders and unsecured bondholders are sustaining financial damage under the proposed chapter 11 plan.
The top lenders disagree with Frontier's proposal to use money from the loan and the sale to pay off revolving debt. Unless there is a settlement, secured lenders will battle Frontier over the loan at a hearing later in the bankruptcy case.
"While the Debtors seek to shroud themselves in a restructuring support agreement...that enjoys broad unsecured creditor support, the truth is that underlying that support is a fragile house of cards that will not withstand scrutiny as these cases unfold," the lenders argued in court papers.
If it continues, opposition from the top lenders, whose loans are secured by liens on some of Frontier's assets, could derail the company's efforts to rework its balance sheet in bankruptcy.
Uncertainty over the impact of Covid-19 on the economy has boosted the pressure on corporations including Frontier that were already dealing with financial creditors when the pandemic rattled the markets.
Frontier expects to complete the sale of operations in Washington, Oregon, Idaho and Montana, its Pacific Northwest business, to WaveDivision Capital LLC for $1.35 billion in cash, the telecom company's lawyers said.
The company's proposed chapter 11 restructuring won't affect the jobs of its 18,000 workers, said Stephen Hessler, one of the lawyers who explained the company's strategy at Thursday's hearing. Regular trade creditors will have their bills covered in full, he said.
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