US regional telco Frontier Communications (NASDAQ:FTR) plans to offer up to US$6.6bn of senior notes in a private placement to help fund its purchase of Verizon Communications’ (NYSE:VZ) wireline operations in three states.
US regional telco Frontier Communications (NASDAQ:FTR) plans to offer up to US$6.6bn of senior notes in a private placement to help fund its purchase of Verizon Communications’ (NYSE:VZ) wireline operations in three states.
The proceeds will be used to finance part of the cash consideration for the US$10.54bn deal, which will see Frontier acquire Verizon’s wireline, broadband, fibre and video assets in California, Florida and Texas.
Frontier still expects the deal, which has won the approval of the FCC and Department of Justice but still needs clearance from the public utilities commissions in California and Texas, to close by the end of Q1 2016.
The telco has already raised US$2.7bn of equity and inked a US$1.5bn senior secured term loan, led by JP Morgan, to help fund the deal.
Wells Fargo analyst Jennifer Fritzsche described the sizeable debt raise as a near-term overhang on Frontier’s shares, particularly in light of recent volatility in high-yield markets. However, she noted that, even with higher interest rates on the debt, the Verizon assets are expected to be free cash flow accretive and enable Frontier to reduce its dividend pay-out ratio.
In a recent SEC filing, Frontier revealed that the wireline assets it is acquiring produced solid results in the second quarter. Revenues were up 0.4% year-on-year to US$1.45bn, adjusted EBITDA was up 3.7% to US$416m and the adjusted EBITDA margin was up to 28.7% from 27.8%.
Frontier has also accepted some US$283m in annual support from the FCC’s Connect America Fund to boost its broadband roll-out.