Frontier debt offer narrows telco's fiber funding gap

Frontier Communications' plan to offer $1.05 billion in securitized debt, with the potential to upsize it, will significantly cut down the company's funding gap for Frontier's plan to build fiber to 10 million locations by 2025, an industry analyst.

Vikash Harlalka, analyst at New Street Research, estimates that Frontier's fiber buildout plan faces a funding gap of about $2.3 billion.

"The offering should close nearly half the gap (more than half, if the offering is upsized,”Harlalka explained in a research note, adding that the move also unlocks a new market for Frontier to tap into for its funding needs.

"It takes most of the funding risk off the table" and removes "one of the overhangs" on Frontier's stock, the analyst explained.

Frontier shares rose 52 cents (3.4%) to $15.80 in Thursday morning trading.

Frontier said the debt offer will be secured by a portion of the company's fiber assets and associated customer contracts in the Dallas metropolitan area, and marks the first offering of "green bonds" by a Frontier subsidiary. The offer will go toward capital expenditures and research and development, "in line with Frontier's fiber expansion and copper migration strategies," the company said.

Harlalka notes that Frontier had about $2.7 billion in liquidity at the end of the first quarter of 2023 – enough to meet the company's capital needs until mid-2024. "This new debt raise should extend that beyond 2024," he added.

Frontier built fiber to an additional 339,000 locations in Q1 2023, ending the quarter with 5.5 million fiber passings and 15.4 million total passings. The company also added a record 87,000 fiber subs in the period, extending that customer total to 1.76 million (1.65 million residential and 110,000 business customers).

Frontier is scheduled to announce Q2 2023 results on Friday, August 4.

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— Jeff Baumgartner, Senior Editor, Light Reading