Frontier’s $1.05B debt offering could narrow its fiber build funding gap

Frontier Communications intends to offer about $1.05 billion aggregate principal amount of secured fiber network revenue term notes, with the potential to upsize, in a move that has the potential to narrow its fiber build funding gap.

The Notes will be secured by certain Frontier’s fiber assets and associated customer contracts in the Dallas metropolitan area and be the first offering of green bonds by a Frontier subsidiary.

As of the end of the first quarter, Frontier had $2.7 billion in liquidity, of which $2 billion was in cash and equivalents with the rest being available revolver capacity. New Street Research noted “this was more than sufficient to meet the capital needs until mid-2024.”

Frontier said it intends to use the net proceeds of the offering to defease certain existing indebtedness and for general corporate purposes, including potential investments or expenditures, such as capital expenditures and research and development, in line with Frontier’s fiber expansion and copper migration strategies.

Vikash Harlalka, an industry analyst with New Street Research said in a research note that the offering has the potential to take “most of the funding risk off the table.”

“One of the overhangs on Frontier’s stock has been the funding gap in its fiber build plan,” he wrote. “We estimate that Frontier’s funding gap is ~$2.3 billion to build fiber to 10 million locations. This offering should close nearly half of the gap (more than half, if the offering is upsized).”

Frontier has been making progress with its fiber build outs and fiber revenue. While the telco won’t report its second quarter earnings until August 4, the telco reported gains in fiber subscribers and fiber broadband revenue in the first quarter.

During the first quarter, Frontier built out fiber to 339,000 locations and added what it said was a record 87,000 fiber broadband customers, resulting in fiber broadband customer growth of 19% from the first quarter of 2022.