EDGAR 10-K Filing

Company CIK: 20520
Filing Year: 2021
Filename: 20520_10-K_2021_0001562762-21-000097.json

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ITEM 1. BUSINESS
Item 1.
Business
Chapter 11 Restructuring
On April 14, 2020, Frontier and its subsidiaries (collectively, the Company Parties or the Debtors and, as they may be reorganized pursuant to the Plan, the Reorganized Company Parties or the Reorganized Debtors) entered into a Restructuring Support Agreement (the Restructuring Support Agreement) with certain of its noteholders (the Consenting Noteholders) to facilitate the financial restructuring (the Restructuring) of the existing debt of, existing equity interests in, and certain other obligations of the Company Parties. In connection therewith, on April 14, 2020 (the Petition Date), the Company Parties commenced cases under chapter 11 (the Chapter 11 Cases) of title 11 of the United States Code (the Bankruptcy Code) in the U.S. Bankruptcy Court for the Southern District of New York (the Bankruptcy Court).
During the Chapter 11 Cases, Frontier is allowed to reorganize its finances while the business operations continue. The Company Parties continue to operate their businesses and manage their properties as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.
To ensure the Company Parties’ ability to continue operating in the ordinary course of business and minimize the effect of the Restructuring on the Company Parties’ customers and employees, the Company Parties filed certain motions and applications intended to limit the disruption of the bankruptcy proceedings on its operations (the First Day Motions), including authority to pay employee wages and benefits, and pay vendors and suppliers for goods and services provided both before and after the filing date.
On May 15, 2020, the Company Parties filed a proposed Joint Plan of Reorganization and related Disclosure Statement, each of which were amended on June 26, 2020, June 29, 2020 and June 30, 2020. On May 15, 2020, the Debtors also filed a proposed order approving the Disclosure Statement and various plan solicitation materials, including the solicitation and voting procedures, which was revised on June 29, 2020 (including modifications to some of the exhibits). On June 30, 2020, the Bankruptcy Court entered the modified order approving the adequacy of the Disclosure Statement and the solicitation and notice procedures and the forms of voting ballots and notices in connection therewith. The order established June 29, 2020 as the voting record date, July 2, 2020 as the solicitation launch date and July 31, 2020 as the voting deadline. On August 21, 2020, the Company Parties filed the Fifth Amended Joint Plan of Reorganization of Frontier Communications Corporation and Its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code (the Plan) with the Bankruptcy Court.
On August 27, 2020, the Bankruptcy Court entered the Order Confirming the Fifth Amended Joint Plan of Reorganization of Frontier Communications Corporation and its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code (the Confirmation Order), which approved and confirmed the Plan. The effective date of the Plan will occur once all conditions precedent to the Plan have been satisfied (the Effective Date).
As set forth in the Plan and the Disclosure Statement, in order to implement the Restructuring contemplated by the Plan, the Company Parties must satisfy several conditions after confirmation of the Plan but prior to emergence from Chapter 11. Among other things, the Company Parties must obtain requisite regulatory approvals, including FCC and required PUC approvals in certain states. As part of the regulatory approval process, the Company made a number of affirmative commitments and the FCC and states have imposed additional conditions on the Company as part of approval for the Restructuring, including specific investment, broadband service deployment, service quality improvements, reporting and compliance conditions. The regulatory approval process is moving forward, and the Company has received Public Utility Commission (PUC) approvals or favorable determinations in all of the required states at this time, except California. No assurance can be given as to the terms, conditions, and timing of the remaining California approval. Even so, the Company expects that the Effective Date will occur in early 2021.
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
As set forth in the Plan (See Plan Art.I.A.98), “Excess Cash” is the amount of estimated unrestricted balance sheet cash in excess of $150 million the Effective Date, and includes net after-tax cash proceeds from the Northwest Operations Sale (which amount to $1,129 million). As disclosed in the Debtors’ Plan Supplement [Docket No.1603], filed on March 1, 2021, the Debtors currently estimate $1,313 million of Excess Cash to be available as of the Effective Date. As set forth in the Plan, on the Effective Date, each of the Debtors’ senior noteholders shall receive, among other things, its Pro Rata share of and interest in the Debtors’ “Surplus Cash.” Under the Plan, the “Incremental Senior Notes Payments” will be made from Excess Cash, prior to the determination of, and distribution of, Surplus Cash.
See “Risk Factors-Risks Related to the Restructuring, Our Indebtedness and Liquidity,” “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Overview” and “-(b) Liquidity and Capital Resources” and Note 3 of the Notes to Consolidated Financial Statements for more information on the Restructuring and the risks related thereto. Refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Overview-Recent Developments-Going Concern” and Note 1 of the Notes to Consolidated Financial Statements for further discussion of the Company’s ability to continue as a going concern and Note 9 for further detail of our debt obligations as of and for the year ended December 31, 2020.
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FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
Overview
Frontier is a provider of communications services in the United States, with approximately 3.6 million customers, 3.1 million broadband subscribers and 16,200 employees, operating in 25 states as of December 31, 2020. We provide a broad portfolio of communications services for consumer and commercial customers. These services, which include data and internet services, video services, voice services, access services and advanced hardware and network solutions, are offered either on a standalone basis or in a bundled package, depending on each customer’s needs.
Our services are delivered to consumer and commercial customers over both fiber and copper-based networks. While approximately half of our revenues currently are generated by legacy telecom services provided over a primarily copper-based network, we are committed to a data-first strategy, transitioning towards a larger proportion of our revenues being derived from our fiber-based offerings. At the same time, we will pursue high return investments in fiber upgrades to further enhance our product suite and capabilities.
In recent years, we have complemented our business strategy with the completion of several acquisitions and divestitures. On May 1, 2020, Frontier completed the sale of its operations and associated assets in Washington, Oregon, Idaho, and Montana (Northwest Operations or Northwest Ops) for gross proceeds of $1,352 million, subject to certain closing adjustments. Net of funding certain pension and other retiree medical liabilities, funding certain escrows and other closing adjustments, we received $1,131 million in proceeds. Approximately 950 employees transitioned upon the closing of the sale. Revenues for the Northwest Operations represented approximately 7% of consolidated revenue for the four month period ended April 30, 2020 and the twelve month period ended December 31, 2019.
Frontier’s Service Territories
(Service territories indicated in red below represent the Northwest Operations which were disposed on May 1, 2020)
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FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
Recent Developments
Debt Refinancing
On August 28, 2020, the Company Parties filed a motion (the DIP Financing Motion) with the Bankruptcy Court to approve the indentures, credit, guarantee and security documents governing the obligations under senior secured superpriority first lien and/or second lien notes to be issued by the Company or an affiliate thereof, a debtor-in-possession (DIP) revolving facility and the exit revolving facility (the Exit Revolving Facility) it would convert into upon satisfaction of certain conditions, including the effectiveness of the Plan, a DIP term loan facility and the exit term loan facility it would convert into upon satisfaction of certain conditions, including the effectiveness of the Plan (the Exit Term Loan Facility) and, if applicable, the reinstated Term Loan B (collectively, the DIP Financing). On September 17, 2020, the Bankruptcy Court entered the final order approving the DIP Financing Motion.
In connection with the DIP Financing, on October 8, 2020, we issued $1,150 million aggregate principal amount of 5.875% First Lien Secured Notes due October 15, 2027 (the First Lien Notes due October 2027), and entered into a $625 million DIP revolving facility (the DIP Revolving Facility) and a $500 million DIP term loan facility (the Initial DIP Term Loan Facility). We used the proceeds from the offering of the First Lien Notes due October 2027, together with the proceeds of the Initial DIP Term Loan Facility and cash on hand, to (i) repay in full our prepetition $1,650 million aggregate principal amount of 8.000% First Lien Secured Notes due April 1, 2027 (the Original First Lien Notes) and (ii) pay related interest, fees and expenses.
In connection with the DIP Financing, on November 25, 2020, we also issued $1,550 million aggregate principal amount of 5.000% First Lien Secured Notes due May 1, 2028 (the First Lien Notes due May 2028 and, together with the First Lien Notes due October 2027, the New First Lien Notes) and $1,000 million aggregate principal amount of 6.750% Second Lien Secured Notes due May 1, 2029 (the New Second Lien Notes), and borrowed an incremental $750 million under the DIP term loan facility (the Incremental DIP Term Loan Facility and, together with the Initial DIP Term Loan Facility, the DIP Term Loan Facility). We used the proceeds from these issuances and the incremental term loan borrowing, together with cash on hand to (i) repay all outstanding borrowings under our prepetition $1,740 million senior secured term loan B facility due June 15, 2024 (the Term Loan B), (ii) repay in full the $1,600 million aggregate principal amount of prepetition 8.500% Second Lien Secured Notes due April 1, 2026 (the Original Second Lien Notes), and (iii) pay related interest, fees and expenses incurred in connection therewith.
Refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Overview” and “-(b) Liquidity and Capital Resources-Term Loan and Revolving Credit Facilities and New Secured Notes” and “-Chapter 11 Cases and Other Related Matters” for additional details.
Rural Digital Opportunity Fund Auction
From October 29, 2020 through November 25, 2020, the Federal Communications Commission (FCC) held the Rural Digital Opportunity Fund (RDOF) Phase I auction and announced the results on December 7, 2020. Frontier was awarded approximately $371 million over ten years to build gigabit- capable broadband over a fiber-to-the-premises network to approximately 127,000 locations across eight states (California, Connecticut, Florida, Illinois, New York, Pennsylvania, Texas, and West Virginia). Frontier submitted its Long Form application to the FCC on January 29, 2021 and, assuming the long-form application is granted by the FCC, anticipates that it will begin receiving funding on January 1, 2022, in which case, Frontier will be required to complete the buildout to the RDOF locations by December 31, 2027, with interim target milestones over this period.
Our Priorities and Competitive Strengths
Modernization Plan
Following a comprehensive study of the best use of excess cash flow for reinvestment, Frontier is pursuing an extensive fiber build-out plan (the “Modernization Plan”) combined with execution on ongoing operational turnaround initiatives. The Modernization Plan, which aims to drive continued growth and increasing penetration of fiber to incremental locations, targets projects with high expected internal rate of return (“IRR”) opportunities based on available reinvestment dollars. Under the Modernization Plan, Frontier expects to nearly double its fiber footprint and subscribers, passing approximately 3.0 million incremental locations with fiber and adding approximately 1.2 million broadband subscribers over the next several years, with additional growth possible.
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
Positive Market Forces
Nation-wide, increased broadband speed is a main focus of consumers and businesses. We believe that the continued increase in the number of connected devices in the average household, along with rising demand for internet-delivered video services (Over The Top, or OTT video) enabled by rising broadband speeds, will further drive total data consumption. Our Modernization Plan is intended to capitalize on these industry trends.
Significant Network and Opportunities
Our current network passes by approximately 14.0 million consumer broadband enabled locations, consisting of 11.0 million copper passings and 3.0 million fiber passings. At December 31, 2020, we had approximately 1.2 million fiber broadband customers, representing an approximate 40% fiber penetration rate across our footprint. We believe there are opportunities for fiber upgrades within our existing footprint, including business locations and wireless towers, as well as adjacent areas. Our copper network includes 11.0 million consumer premises, of which 3.0 million we plan to upgrade to fiber under our Modernization Plan and another 8.0 million that we may seek to convert into fiber and further penetrate existing markets. We plan to leverage installed assets and resources, such as conduit, rights-of-way, field service, and distribution and billing, to enable efficient technology conversion and profitable market penetration. We also believe there is significant opportunity to enhance cash flow by improving our existing operations, including through improving product and service capabilities to enhance customer satisfaction and reduce churn.
Improving Operational Efficiency and Profitability
Our initiatives are driven by our broader strategy of shifting focus towards a higher performance, data-driven product suite, and away from legacy products. We have implemented a number of operational initiatives across our business, including customer churn reduction initiatives, reducing content costs in our video product and deemphasizing video bundles, and transforming our enterprise sales force. Our strategic initiatives enabled us to achieve six consecutive quarters of positive net fiber broadband additions and a year-over-year improvement in net losses in copper markets as of the December 31, 2020. Moreover, we have achieved significant repricing and reduction of video gross additions, while still maintaining positive broadband net additions. Finally, we continue to execute on our video strategy of achieving savings by renegotiating contracts to lower content costs or dropping channels entirely. In our Commercial business in particular, we are committed to improving our relationships with our wholesale customers and are transitioning to a more productive enterprise sales force focused on cultivating relationships with the existing customer base, minimizing churn, and driving efficient sales of core strategic products.
Restructured Balance Sheet and Cash Flow Generation to Drive Reinvestment
Our Chapter 11 restructuring is expected to eliminate approximately $11 billion of debt from our balance sheet upon emergence, which will enable significant annual interest savings. We expect this will provide flexibility to reinvest in fiber upgrades at attractive returns or pursue further deleveraging. However, this may not be indicative of our actual financial condition upon emergence, and it is possible that changes to the Plan may occur prior to or in connection with our emergence from bankruptcy, which could result in material differences to our capitalization and financial condition upon emergence. See “Risk Factors-Risks Related to the Restructuring, Our Indebtedness and Liquidity-" We believe our excess cash flow can be invested back into the business at very compelling risk adjusted returns based upon potential expansion and growth opportunities identified.
Our Customers
We conduct business with both consumer and commercial customers.
Consumer
We provide broadband, video, voice and other services and products to our consumer customers. We deliver these services generally over a combination of fiber and copper-based networks.
Commercial (small and medium businesses and larger enterprise customers (SME) as well as wholesale customers)
We provide a broad range of services to our SME and wholesale customers, including broadband service, ethernet service, traditional circuit-based services, software defined wide area network (SDWAN), managed Wi-Fi and cloud IT solutions, voice and Unified Communications as a Service (UCaaS) services and Voice over Internet Protocol (VoIP). We also offer advanced hardware and network solutions and services.
oSmall Business: Mostly single-location businesses that subscribe to our traditional circuit-based services, the smallest of which have purchase patterns similar to consumer customers.
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
oMedium Businesses and Large Enterprise: Fortune 1000, multi-location companies, government entities, educational institutions, non-profits and small businesses that subscribe to ethernet based services.
oWholesale: Wholesale customers are often referred to as carriers or service providers and include national operators such as AT&T and Verizon; local exchange companies that need to access locations within Frontier’s footprint to offer local services; and wireless carriers and integrated carriers that offer a variety of services across all of these categories. Wholesale customers buy both voice and data services to supplement their own network infrastructure.
Services
We offer a broad portfolio of communications services for consumer and commercial customers. These services are offered on either a standalone basis or in a bundled package, depending on each customer’s needs.
Data and internet services: We offer a comprehensive range of broadband and networking services. The principal consumer service we provide is broadband internet. Commercial services include a complete portfolio of ethernet services, dedicated internet, SDWAN, managed Wi-Fi, time division multiplexing data transport services and optical transport services. These services are all supported by 24/7 technical support and an advanced network operations center. We also offer wireless broadband services (through unlicensed spectrum) in select markets utilizing networks that we own or operate.
Video services: We provide direct linear video services in portions of California, Texas, Florida, Indiana, Connecticut, North Carolina, South Carolina, Minnesota, Illinois, New York, and Ohio. We also offer satellite TV video service to our customers under an agency relationship with Dish Network Corp. (Dish) in all of our markets. We also offer over-the-top (OTT) video service to our customers under referral agreements with OTT providers in all of our markets.
Voice services: We provide voice services, including data-based VoIP and UCaaS, long-distance and voice messaging services, to consumer and commercial customers in all of our markets. These services are billed monthly in advance. Long-distance service to and from points outside our operating properties are provided by interconnection with the facilities of interexchange carriers. Our long-distance services are billed in advance for unlimited use service and billed in arrears for services on a per minute-of-use basis.
Access services: We offer a range of access services. Our switched access services allow other carriers to use our facilities to originate and terminate their local and long-distance voice traffic. These services are generally offered on a month-to-month basis and the service is billed primarily on a minutes-of-use basis. Switched access charges are based on access rates filed with the Federal Communications Commission (FCC) for interstate services and with the respective state regulatory agency for intrastate services. See “Regulatory Environment” below.
Advanced hardware and network solutions: We offer our SME customers various hardware and network solutions utilizing cloud functionality, including end-to-end solutions like cloud managed services and Managed Wireless LAN, as well as providing customer premise equipment (CPE). We offer third-party communications equipment tailored to their specific business needs by partnering with Mitel, Cisco, Ingram Micro, Airbus, Avaya, Hewlett Packard, Adtran and other equipment manufacturers. CPE is typically sold in conjunction with voice, data and Internet services, but may also be sold on a standalone basis.
Network Architecture and Technology
Our local exchange carrier networks consist of host central office and remote sites, primarily equipped with digital and Internet Protocol switches. The outside plant consists of transport and distribution delivery networks connecting our host central office with remote central offices and ultimately with our customers. We own fiber optic and copper cable, which have been deployed in our networks and are the primary transport technologies between our host and remote central offices and interconnection points with other communication carriers.
We have expanded and enhanced our fiber optic and copper transport systems to support increasing demand for high bandwidth transport services. We routinely enhance our network and upgrade with the latest internet protocol transport and routing equipment, reconfigurable optical add/drop multiplexers transport systems, passive optical network, very high speed digital subscriber line broadband equipment, and VoIP switches. These systems support advanced services such as ethernet, dedicated internet, VoIP, and SDWAN. The network is designed with redundancy and auto-failover capability on our major circuits.
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
We connect to households and business locations in our service territory using a combination of fiber optic, copper and wireless technologies. In some cases, we provide direct fiber into a residence or a business premises. In other cases, a location is served with a hybrid combination of fiber and copper. Residences in our service territory are served by fiber-to-the-home and by fiber-to-the-node, meaning fiber carries the traffic to an intermediate location where the signals are converted to copper wire for the final delivery to the household. We provide data, video, and voice services to customers over both of these architectures. Additionally, fixed wireless broadband (FWB) will play an important part of our future broadband strategy and is deployed for some business ethernet services. FWB is delivered by the use of an antenna on a Frontier base location and another antenna at the customer location.
Competition
For the large majority of premises passed, we currently face competition from no more than one wireline competitor, including a portion of our footprint does not currently face any wireline competition. Moreover, we operate in many dense, urban markets with favorable demographic characteristics, including higher income and/or lower age, each of which correlate to higher broadband usage.
Competition within the communications industry is intense. Technological advances as well as regulatory and legislative changes have enabled a wide range of historically non-traditional communications service providers to compete with traditional providers, including Frontier. More market participants are now competing to meet the communications needs of the same customer base, thus increasing competitive pressures. Many of these service providers are not subject to the same regulations as traditional communications providers and have lower cost structures than we do. The industry has also experienced substantial consolidation in recent years. Many of our competitors are larger, have stronger brand recognition, have more service offerings and have greater financial resources than we currently do. All of these factors create downward pressure on the demand for and pricing of our services. In addition to traditional communication providers we have competition with the following:
-Cable operators: In a majority of our markets, cable operators offer high speed Internet, video and voice services similar to ours, and compete with us aggressively for consumer and business customers on speed and price primarily by marketing with significant promotional period pricing.
-Wireless carriers: Wireless operators offer broadband, video and voice services and compete with us for consumer and business customers by offering increasingly larger data packages that utilize the latest 5G technology to mobile customers. As a result, the percentage of premises with landline telephone service has been declining, a trend we expect will continue.
-Online video providers: Many consumers are opting for OTT video services rather than traditional, multi-channel video. In response, we have made investments in our network to deliver OTT video content to consumers who might not opt for traditional video services. The percentage of premises with a traditional, multi-channel video product has declined, a trend we expect will continue.
Competition for consumer customers is based on price, bandwidth, quality and speed of service, including promotions as well as bundling of service offerings. Competition comes from other communications providers, cable operators, Competitive Local Exchange Companies (CLECs) and other enterprises. Our focus is to improve our customers’ experience through the deployment of efficient responses for their specific needs. This will improve the overall service quality provided and encourage migration to higher speed internet services. Some consumer customers prefer the convenience and discounts available when voice, data, Internet and or video services are bundled by a single provider. To address this demand, we offer satellite TV video service through a partnership with Dish® in areas where we don’t otherwise have our own video capabilities.
Competition for commercial customers is also based on price, bandwidth, quality and speed of service, including pricing and promotions and bundled offerings. Competition comes from other communications providers, cable operators, CLECs and other enterprises. As compared to our consumer customers, commercial customers often require more sophisticated and more data-centered solutions (e.g., IP PBX, E911 networks, ethernet and SIP trunking). In order to differentiate ourselves from other service providers, Frontier delivers end-to-end solutions such as cloud managed services and managed wireless LAN.
As customers continue to migrate to OTT video models, broadband is a core growth component for attracting and retaining consumer customers as well as our smaller commercial customers. We are committed to growing our
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
customer base through providing higher broadband speeds and capacity that will enable us to reach new markets, target new customers and grow the business while maximizing our full geographic footprint.
In addition to the focus on our broadband capabilities, we must continue to evolve our other product offerings to stay current with the changing needs of the market, provide strong customer service and support, invest in our network to enable adequate capacity and capabilities, and package our offerings at attractive prices. We are continuing to execute on our initiatives to drive operational performance, invest in our fiber network, add talent to our organization and become a stronger partner to our residential and enterprise customers.
Regulatory Environment
Some of our operations are subject to regulation by the FCC and various state regulatory agencies, often called public service or utility commissions. We expect federal and state lawmakers, the FCC and the state regulatory agencies to continue to revise the statutes and regulations governing communications services.
Regulation of Our Business
We are subject to federal, state and local regulation and we have various regulatory authorizations for our regulated service offerings. At the federal level, the FCC generally exercises jurisdiction over information services, interstate or international telecommunications services and over facilities to the extent they are used to provide, originate or terminate interstate or international services. State regulatory commissions generally exercise jurisdiction over intrastate telecommunications services and the facilities used to provide, originate or terminate those services. Most of our local exchange companies operate as incumbent carriers in the states in which they operate and are certified in those states to provide local telecommunications services. Certain federal and state agencies, including attorneys general, monitor and exercise oversight related to consumer protection issues, including marketing, sales, provision of services, and service charges. In addition, local governments often regulate the public rights-of-way necessary to install and operate networks and may require service providers to obtain licenses or franchises regulating their use of public rights-of-way. Municipalities and other local government agencies also may regulate other limited aspects of our business, by requiring us to obtain cable franchises and construction permits and to abide by applicable building codes.
Some state regulatory agencies have substantial oversight over incumbent telephone companies, and their interconnection with competitive providers and provision of non-discriminatory network access to certain network elements to them. Under the Federal Telecommunications Act of 1996, state regulatory commissions have jurisdiction to set certain rates, arbitrate, and review interconnection disputes and agreements between incumbent telephone companies and CLECs, in accordance with rules set by the FCC. The FCC and some state regulatory commissions also impose fees on providers of telecommunications services to support the federal and state universal service programs. Many of the states in which we operate require prior approvals or notifications for certain acquisitions and transfers of assets, customers, or ownership of regulated entities.
Additionally, in some states we are subject to operating restrictions and minimum service quality standards. Failure to meet such restrictions may result in penalties or other obligations, including subjecting the Company to additional reporting and compliance obligations. As part of its required regulatory approval to emerge from Chapter 11, the Company has also agreed to and been required by certain states to comply with additional service quality, expenditures, reporting and other requirements. We also are required to report certain financial information. At the federal level and in a number of the states in which we operate, we are subject to price cap or incentive regulation plans under which prices for regulated services are capped. Some of these plans have limited terms and, as they expire, we may need to renegotiate with various states. These negotiations could impact rates, service quality and/or infrastructure requirements, which could also impact our earnings and capital expenditures. In other states in which we operate, we are subject to rate of return regulation that limits levels of earnings and returns on investments. Approximately 17% of our total access lines as of December 31, 2020 are in state jurisdictions under the rate of return regulatory model. We continue to advocate for no or reduced regulation with the regulatory agencies in those states. In some of the states we operate in we have already been successful in reducing or eliminating price regulation on end-user services.
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
Federal Regulatory Environment
Frontier, along with all telecommunications providers, is subject to FCC rules governing privacy of specified customer information. Among other things, these rules obligate carriers to implement procedures to: protect specified customer information from inappropriate disclosure; obtain customer permission to use specified information in marketing; authenticate customers before disclosing account information; and annually certify compliance with the FCC’s rules. Although most of these regulations are generally consistent with our business plans, they may restrict our flexibility in operating our business.
Some regulations are, or could in the future be, the subject of judicial proceedings, legislative hearings and administrative proposals or challenges that could change the manner in which the entire industry operates or the way we provide our services. Neither the outcome of any of these developments, nor their potential impact on us, can be predicted at this time. Regulation can change rapidly in the communications industry, and such changes may have an adverse effect on us.
The current status of material regulatory initiatives is as follows:
Connect America Fund (CAF)/ Rural Digital Opportunity Fund (RDOF): In 2015, Frontier accepted the FCC’s CAF Phase II offer in 29 states, which provides $332 million in annual support and in return the Company is committed to make broadband available to approximately 774,000 locations within its footprint. This amount included approximately 41,000 locations and $19 million in annual support related to the four states of the Northwest Operations, which were disposed on May 1, 2020. The CAF Phase II program is intended to provide long-term support for carriers for establishing and providing broadband service with at least 10 Mbps downstream/1 Mbps upstream speeds in high-cost unserved or underserved areas. The CAF II funding runs through 2021.
On January 30, 2020, the FCC adopted an order establishing the Rural Digital Opportunity Fund (RDOF), a competitive reverse auction to provide support to serve high cost areas. The FCC held the RDOF Phase I auction from October 29, 2020 through November 25, 2020, and announced the results on December 7, 2020. Frontier was awarded approximately $371 million over ten years to build gigabit-capable broadband over a fiber-to-the-premises network to approximately 127,000 locations across eight states (California, Connecticut, Florida, Illinois, New York, Pennsylvania, Texas, and West Virginia). Frontier submitted its Long Form application to the FCC on January 29, 2021 and, assuming the long-form application is granted by the FCC, anticipates that it will begin receiving funding on January 1, 2022, in which case, Frontier will be required to complete the buildout to the RDOF locations by December 31, 2027, with interim target milestones over this period.
After the FCC completes its current requirement to update its broadband maps with more granular broadband availability information, the FCC plans to hold a second auction for any remaining locations with the remaining funding, expected to be up to approximately $11.2 billion.
Intercarrier Compensation: In the 2011 Universal Service Fund (USF)/Intercarrier Compensation (ICC) Report and Order (the 2011 Order), the FCC reformed Intercarrier Compensation, which is the payment framework that governs how carriers compensate each other for the exchange of interstate switched traffic and began a multi-year transition to the new rates. The 2011 Order provided for the gradual elimination of effectively all terminating traffic charges by July 2017. The 2011 Order did not resolve all questions on originating access rates, however in an October 2020 order, the FCC adopted a 2-year transition of 1-800 (toll free) switched access charges to zero beginning July 2021, thus further reducing this declining revenue stream. The FCC continues to consider the possibility of a transition of originating access rates, and the potential impact on Frontier from such a change, if any, is unknown at this time. Our total revenue for Intercarrier Compensation was $3 million for the year ended December 31, 2020.
Special Access: On April 20, 2017, the FCC issued an Order (the 2017 Order) that significantly altered how commercial data services are regulated. Specifically, the 2017 Order adopted a test to determine, on a county-by-county basis, whether price-cap ILEC services, such as Frontier’s DS1 and DS3 services, will continue to be regulated. The test resulted in deregulation in a substantial number of our markets and is allowing Frontier to offer its DS1 and DS3 services in a manner that better responds to the competitive marketplace and allows for commercial negotiation. The areas that remain regulated may be subject to price fluctuations depending upon the price cap formula in each year. While multiple parties appealed the 2017 Order, the 8th Circuit issued a decision that upheld the majority of the 2017 Order. As to the part of the decision that was vacated and remanded to the FCC, the FCC has reinstated the deregulation and the FCC’s decision to reaffirm its deregulation has not been appealed.
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
Intrastate Services: Some state regulatory commissions regulate some of the rates ILECs charge for intrastate services, including originating switched access rates for intrastate access services paid by providers of intrastate long-distance services. Some states also have their own open proceedings to address reform to originating intrastate access charges and other intercarrier compensation and state universal service funds. Although the FCC has pre-empted state jurisdiction on most access charges, some states could consider moving forward with their proceedings. We cannot predict when or how these matters will be decided or the effect on our subsidy or switched access revenues. Our total revenue for Intrastate switched access services was $30 million for the year ended December 31, 2020, spread across all the states we serve.
Current and Potential Internet Regulatory Obligations: On October 1, 2019, the D.C. Circuit Court largely upheld the FCC decision in its 2018 Restoring Internet Freedom Order to reclassify broadband as an “information service.” However, the Court invalidated the FCC’s preemption of a state’s ability to pass their own network neutrality rules and remanded back to the FCC other parts of the 2018 Order. We anticipate that this ruling will be appealed. California’s network neutrality provisions will remain on hold until all appeals of this case have been exhausted. It is unclear whether pending or future appeals will have any impact on the regulatory structure, and it is unclear the degree to which the outcome of the November 2020 elections may impact federal legislative or regulatory action on net neutrality issues.
Privacy: Privacy-related legislation has been considered in a number of states. Legislative and regulatory action could result in increased costs of compliance, claims against broadband internet access service providers and others, and increased uncertainty in the value and availability of data. On June 28, 2018, the state of California enacted comprehensive privacy legislation that, effective as of January 1, 2020, gives California consumers the right to know what personal information is being collected about them, and whether and to whom it is sold or disclosed, and to access and request deletion of this information. Subject to certain exceptions, it also gives consumers the right to opt-out of the sale of personal information. The law applies the same rules to all companies that collect consumer information. It is unclear the degree to which the outcome of the November 2020 elections may impact federal legislative or regulatory action around privacy.
Coronavirus/COVID-19: On March 13, 2020, in response to the COVID-19 pandemic, over 550 providers of critical communications services, including Frontier, took the FCC’s Keep Americans Connected pledge pursuant to which providers agreed (i) not to terminate service to any residential or small business customers because of their inability to pay their bills due to the disruptions caused by the coronavirus pandemic; (ii) to waive any late fees that any residential or small business customers incur because of their economic circumstances related to the coronavirus pandemic; and (iii) to open its Wi-Fi hotspots to any American who needs them. The Keep Americans Connected Pledge expired on June 30, 2020; however, state and federal governments continue to ask companies to aid in pandemic response. A number of the states we operate in have issued executive orders prohibiting the disconnection of services for customers for the length of the state of emergency and/or otherwise restrict the assessment of late fees during the pandemic. While certain customers have taken advantage of our COVID-19 related relief programs, as of December 31, 2020, very few had past due balances beyond the point of normal disconnection. Given the unprecedented and evolving nature of the pandemic and the evolving response of multiple levels of government, the impact of potential changes on the Company are not fully known at this time.
For information on the tax-related legislative response to the COVID-19 pandemic, see “Risk Factors-Risks Related to the Restructuring, Our Indebtedness and Liquidity-We may not be able to fully utilize our net operating loss and other tax carryforwards.” and “Risks Related to Regulation and Oversight-Tax legislation may adversely affect our business and financial condition.”
Video Programming
Federal, state and local governments extensively regulate the video services industry. Our linear video services are subject to, among other things: subscriber privacy regulations; requirements that we carry a local broadcast station or obtain consent to carry a local or distant broadcast station; rules for franchise renewals and transfers; the manner in which program packages are marketed to subscribers; and program access requirements.
We provide video programming in some of our markets in California, Connecticut, Florida, Illinois, Indiana, Minnesota, New York, North Carolina, Ohio, South Carolina, and Texas pursuant to franchises, permits and similar authorizations issued by state and local franchising authorities. Most franchises are subject to termination proceedings in the event of a material breach or expire in the ordinary course. In addition, most franchises require payment of a franchise fee as a requirement to the granting of authority.
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Many franchises establish comprehensive facilities and service requirements, as well as specific customer service standards and monetary penalties for non-compliance. In many cases, franchises are terminable if the franchisee fails to comply with material provisions set forth in the franchise agreement governing system operations. We believe that we are in compliance and meeting all material standards and requirements. Franchises are generally granted for fixed terms of at least ten years and must be periodically renewed. Local franchising authorities may resist granting a renewal if either past performance or the prospective operating proposal is considered inadequate.
Our agreement with Verizon for use of the FiOS brand and trademark in markets acquired from them will expire on March 31, 2021 and will not be renewed or extended. Frontier is in the process of rebranding our related data and video services as Frontier FiberOptic Internet and Frontier TV, respectively.
Environmental Regulation
The local exchange carrier subsidiaries we operate are subject to federal, state and local laws and regulations governing the use, storage, disposal of, and exposure to hazardous materials, the release of pollutants into the environment and the remediation of contamination. As an owner and former owner of property, we are subject to environmental laws that could impose liability for the entire cost of cleanup at contaminated sites, including sites formerly owned by us, regardless of fault or the lawfulness of the activity that resulted in contamination. We believe that our operations are in substantial compliance with applicable environmental laws and regulations.
Segment Information
We currently operate in one reportable segment.
Financial Information about Foreign and Domestic Operations and Export Sales
We have no foreign operations.
General
The dollar amount of our order backlog is not a significant consideration in our business and is not a meaningful metric for us. We have no material contracts or subcontracts that may be subject to renegotiation of profits or termination at the election of the federal government.
Intellectual Property
We believe that we have the trademarks, trade names and intellectual property licenses that are necessary for the operation of our business.
We own or have the rights to use various trademarks, service marks and trade names referred to in this report. Solely for convenience, we refer to trademarks, service marks and trade names in this report without the ™, SM and ® symbols. Such references are not intended to indicate, in any way, that we will not assert, to the fullest extent permitted by law, our rights to our trademarks, service marks and trade names. Other trademarks, trade names or service marks appearing in this report are the property of their respective owners.
Human Capital Resources
As of December 31, 2020, we had approximately 16,200 employees, as compared to approximately 18,300 employees as of December 31, 2019. During 2020, reduction in workforce activities resulted in the separation of approximately 35 employees. In addition, 950 employees, including 742 employees represented by unions, were transferred with the sale of our Northwest Operations in May 2020. As of December 31, 2020, approximately 11,300 of our total employees are represented by unions including approximately 3,200 employees covered by collective bargaining agreements that have expired but have been extended into 2021. Of the union-represented employees as of December 31, 2020, approximately 6,100 employees are covered by collective bargaining agreements that expire in 2021 and approximately 1,800 employees are covered by collective bargaining agreements that expire in 2022. We consider our relations with our employees to be good.
Our workforce is currently supplemented by about 525 contract workers, primarily supporting the technology and field operations groups. We are a federal contractor and follow the rules set forth by the Department of Labor Office of Compliance (OFCCP), including those applicable to recruiting, hiring and diversity.
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Our human resources programs are designed to balance the priorities of our customers, employees and stakeholders. Selected key programs include:
We offer competitive compensation packages targeted to market levels. Our benefit programs are designed to provide a safety-net to help our employees focus on our customers while managing the costs to participants and the Company.
Compensation and benefits for our union employees are defined in our collective bargaining agreements.
We foster employee skills and development through comprehensive training programs. For example, we provide continuous training to our customer facing employees on our latest technology and services to help facilitate a better customer experience. We also provide ongoing safety training to our field technicians to ensure both the safety of our employees and our customers.
We provide tuition reimbursement programs to encourage personal and professional growth.
We provide leadership development and coaching programs designed to grow leadership capacity, develop greater self-awareness and build a robust leadership pipeline.
In response to COVID-19, we acted quickly and decisively to protect our employees and customers, avoiding furloughs and minimizing impacts to our customers.
We have operations in four large metropolitan areas as well as thousands of rural hubs across our 25-state footprint. In many of these areas, Frontier is a significant employer and contributor to the local economy. In this capacity we seek to provide grass roots support for local projects that benefit the communities that we serve. Further, we participate in the FCC’s CAF (now RDOF) programs which provide support for Frontier to establish and provide broadband service in underserved areas.
As we execute on our modernization plan and related operational initiatives, key priorities will include elevating our corporate culture, enhancing and fostering diversity and inclusion across our corporation and ensuring that our workforce is appropriately aligned with key business initiatives.
Available Information
We make available, free of charge on our website, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as practicable after we electronically file these documents with, or furnish them to, the SEC. These documents may be accessed through our website at www.frontier.com under “Investor Relations.” The information posted or linked on our website is not part of, or incorporated by reference into, this report. We also make our Annual Report available in printed form upon request at no charge.
We also make available on our website, as noted above, or in printed form upon request, free of charge, our Corporate Governance Guidelines, Code of Business Conduct and Ethics, Specific Code of Business Conduct and Ethics Provisions for Certain Officers, and the charters for the Audit, Compensation, and Nominating and Corporate Governance committees of the Board of Directors. Stockholders may request printed copies of these materials by writing to: 401 Merritt 7, Norwalk, Connecticut 06851 Attention: Corporate Secretary.
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Forward-Looking Statements
This Annual Report on Form 10-K contains "forward-looking statements," related to future events. Forward-looking statements address our expected future business and financial performance and financial condition, and contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "see," "may," “will,” "would," or "target." Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include, but are not limited to:
our ability to continue as a going concern;
our ability to successfully consummate the Restructuring of our existing debt, existing equity interests, and certain other obligations, and emerge from the Chapter 11 Cases, including by satisfying both the conditions in the Plan and the conditions and milestones in the Restructuring Support Agreement;
our ability to improve our liquidity and long-term capital structure and to address our debt service obligations through the Restructuring and the potential adverse effects of the Chapter 11 Cases on our liquidity and results of operations;
our ability to maintain relationships with suppliers, customers, employees and other third parties as a result of the Restructuring and the Chapter 11 Cases;
the effects of the Restructuring and the Chapter 11 Cases on us and the interests of various constituents;
risks and uncertainties associated with the Restructuring, including our ability to satisfy the conditions precedent for effectiveness of and successfully consummate the Restructuring in accordance with the Plan under the Chapter 11 Cases;
our ability to comply with the restrictions imposed by covenants in our DIP Financing and expected to be imposed by our exit financing;
the length of time that we will operate under Chapter 11 protection and the continued availability of operating capital during the pendency of the Chapter 11 Cases;
risks associated with third party motions in the Chapter 11 Cases, which may interfere with the Company’s ability to consummate the Restructuring;
increased administrative and legal costs related to the Chapter 11 process;
declines in revenue from our voice services, switched and nonswitched access and video and data services that we cannot stabilize or offset with increases in revenue from other products and services;
declines in Adjusted EBITDA relative to historical levels that we are unable to offset through potential EBITDA enhancements;
our ability to successfully implement strategic initiatives, including opportunities to enhance revenue and realize productivity improvements;
our ability to effectively manage our operations, operating expenses, capital expenditures, debt service requirement and cash paid for income taxes and liquidity;
competition from cable, wireless and wireline carriers, satellite, and over the top companies, and the risk that we will not respond on a timely or profitable basis;
our ability to successfully adjust to changes in the communications industry, including the effects of technological changes and competition on our capital expenditures, products and service offerings;
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risks related to disruption in our networks, infrastructure and information technology that result in customer loss and/or incurrence of additional expenses;
the impact of potential information technology or data security breaches or other cyber-attacks or other disruptions;
our ability to retain or attract new customers and to maintain relationships with customers, employees or suppliers;
our ability to secure, continue to use or renew intellectual property and other licenses used in our business;
changes to our board of directors and management team upon our emergence from bankruptcy or in anticipation of emergence, and our ability to hire or retain key personnel;
our ability to dispose of certain assets or asset groups on terms that are attractive to us, or at all;
the effects of changes in the availability of federal and state universal service funding or other subsidies to us and our competitors and our ability to obtain future subsidies, including expiration of CAF II funding and, future RDOF funding and participation in the next round of the RDOF program;
our ability to meet our CAF Phase II and RDOF obligations and the risk of penalties or obligations to return certain CAF Phase II and/or RDOF funds;
our ability to defend against litigation and potentially unfavorable results from current pending and future litigation;
our ability to comply with applicable federal and state consumer protection requirements, including agreements entered into with regulators related to consumer protection issues;
the effects of state regulatory requirements that could limit our ability to transfer cash among our subsidiaries or dividend funds up to the parent company;
the effects of governmental legislation and regulation on our business, including costs, disruptions, possible limitations on operating flexibility and changes to the competitive landscape resulting from such legislation or regulation;
the impact of regulatory, investigative and legal proceedings and legal compliance risks, including failure to comply with Restructuring-related obligations imposed by Federal and State regulators and/or agreed to by the Company;
government infrastructure projects (such as highway construction) that impact our investment plans and costs;
continued reductions in switched access revenues as a result of regulation, competition or technology substitutions;
our ability to effectively manage service quality in the states in which we operate and meet mandated or agreed upon service quality metrics;
the effects of changes in income tax rates, tax laws, regulations or rulings, or federal or state tax assessments, including the risk that such changes may benefit our competitors more than us, as well as potential future decreases in the value of our deferred tax assets;
the effects of changes in accounting policies or practices, including potential future impairment charges with respect to our intangible assets or additional losses on assets held for sale;
the effects of increased medical expenses and pension and postemployment expenses;
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our ability to successfully renegotiate union contracts;
changes in pension plan assumptions, interest rates, discount rates, regulatory rules and/or the value of our pension plan assets, which could require us to make increased contributions to the pension plan in 2020 and beyond;
adverse changes in economic, political and market conditions in the areas that we serve, the U.S. and globally, including but not limited to, changes resulting from epidemics, pandemics and outbreaks of contagious diseases, including the coronavirus global pandemic, or other adverse public health developments;
potential adverse impacts of the COVID-19 pandemic on our business and operations, including potential disruptions to the work of our employees arising from health and safety measures such as social distancing and working remotely, our ability to effectively manage increased demand on our network, our ability to maintain relationships with our current or prospective customers and vendors as well as their abilities to perform under current or proposed arrangements with us, and stress on our supply chain; and
trading price and volatility of our common stock, risks related to the delisting of our common stock from the
Nasdaq Global Select Market and the cancellation of our common stock contemplated by the Plan.
Any of the foregoing events, or other events, could cause our results to vary from management’s forward-looking statements included in this report. You should consider these important factors, as well as the risks set forth under Item 1A. “Risk Factors,” in evaluating any statement in this report or otherwise made by us or on our behalf. We have no obligation to update or revise these forward-looking statements and do not undertake to do so.
Investors should also be aware that while we do, at various times, communicate with securities analysts, it is against our policy to disclose to them selectively any material non-public information or other confidential information. Accordingly, investors should not assume that we agree with any statement or report issued by an analyst, irrespective of the content of the statement or report. To the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not our responsibility.
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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
Before you make an investment decision with respect to any of our securities, you should carefully consider all the information we have included in this Annual Report on Form 10-K and our subsequent filings with the SEC. In particular, you should carefully consider the risk factors described below and the risks and uncertainties related to “Forward-Looking Statements,” any of which could materially adversely affect our business, operating results, financial condition and the actual outcome of matters as to which forward-looking statements are made in this annual report. The risks and uncertainties described below are not the only ones facing Frontier. Additional risks and uncertainties that are not presently known to us or that we currently deem immaterial or that are not specific to us, such as general economic conditions, may also adversely affect our business and operations. The following risk factors should be read in conjunction with the balance of this annual report, including the consolidated financial statements and related notes included in this report.
Risks Related to the Restructuring, Our Indebtedness and Liquidity
There is no assurance that we will be able to successfully complete the Restructuring contemplated in the Plan, creating substantial doubt about our ability to continue as a going concern.
Our ability to continue as a going concern is dependent upon our ability to consummate the Restructuring and to generate sufficient liquidity from the Restructuring to meet our obligations and operating needs. Our ability to consummate the Restructuring is subject to risks and uncertainties many of which are beyond our control. These factors, together with the Company’s recurring losses from operations and accumulated deficit, create substantial doubt about our ability to continue as a going concern. There can be no assurance that we will be able to successfully consummate the Restructuring on the terms set forth in the Plan, or at all, or realize all or any of the expected benefits from the Restructuring. See Note 3 of the notes to consolidated financial statements contained herein for more information on the Restructuring and the risks related thereto.
We have sought the protection of the Bankruptcy Court, which subjects us to the risks and uncertainties associated with bankruptcy and may harm our business.
We have sought the protection of the Bankruptcy Court and as a result our operations and ability to develop and execute our business plan, and our ability to continue as a going concern, are subject to the risks and uncertainties associated with bankruptcy. As such, seeking Bankruptcy Court protection could have a material adverse effect on our business, financial condition, results of operations and liquidity. Our senior management has been required to spend a significant amount of time and effort attending to the Restructuring instead of focusing exclusively on our business operations. Bankruptcy Court protection also might make it more difficult to retain management and other employees necessary to the success and growth of our business.
Other significant risks include the following:
our ability to consummate the Plan;
the high costs of bankruptcy and related fees;
the imposition of restrictions or obligations on the Company by regulators related to
the bankruptcy and emergence from Chapter 11;
our ability to obtain sufficient financing to allow us to emerge from bankruptcy and
execute our business plan post-emergence;
our ability to maintain our relationships with our suppliers, service providers, customers, employees, and other third parties;
our ability to maintain contracts that are critical to our operations; and
the actions and decisions of our debtholders and other third parties who have interests in our Chapter 11 Cases that may be inconsistent with our plans.
Delays in the Chapter 11 Cases could increase the risks of our being unable to reorganize our business and emerge from bankruptcy and increase our costs associated with the bankruptcy process.
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If the Restructuring Support Agreement is terminated, our ability to confirm and consummate the Plan may be materially and adversely affected.
The Restructuring Support Agreement contains a number of termination events, some of which would give any consenting unsecured noteholders the right to terminate such Restructuring Support Agreement, which could adversely affect our ability to consummate the Plan. For example, the breach in any material respect by any of the Debtors of the representations, warranties and covenants set forth therein; the issuance by any governmental authority of any order that would be expected to prevent the consummation of the Restructuring Transactions (as defined in the Restructuring Support Agreement); an order or motion seeking the entry of an order dismissing one or more of the Chapter 11 Cases or converting the Chapter 11 Cases to a case under chapter 7; failure to meet any milestone under the Restructuring Support Agreement; the proposal or support of any plan of liquidation, asset sale of all or substantially all of the Debtor’s assets or plan of reorganization other than the Plan, among others. If the Restructuring Support Agreement is terminated, we may be unable to consummate the Plan, and there can be no assurance that we would be able to enter into a new plan or that any new plan would be as favorable to holders of claims as the Plan that has been confirmed. In addition, any Chapter 11 Cases may become protracted, which could significantly and detrimentally impact our relationships with our suppliers, service providers, customers, employees, and other third parties.
The consummation of the transactions contemplated by the Plan may not occur.
We will not complete the transactions contemplated by the Plan unless and until all conditions precedent to the consummation of the Plan are satisfied or waived. Those conditions include:
the entry by the Bankruptcy Court of the Confirmation Order, with such Confirmation Order being a final order and in full force and effect;
the issuance of the Reorganized Company’s new common stock;
the issuance of Takeback Debt;
the receipt of certain regulatory approvals, including from the FCC and state-level public utilities commissions; and
such other conditions as mutually agreed by the Company and each of its direct and indirect subsidiaries that has executed the Restructuring Support Agreement and the Required Consenting Noteholders. (as defined herein).
Some of these conditions are not under our control. There can be no assurance that any or all of the conditions precedent will be satisfied or waived or that these transactions will be completed as currently contemplated or at all. Even if these transactions are completed, they may not be completed on the anticipated schedule or terms. If these transactions are not completed on the anticipated schedule or terms, we may incur significant additional costs and expenses.
We will have a significant amount of indebtedness upon emergence and we may still be able to incur substantially more debt in the future. Such debt and debt service obligations may adversely affect us.
Under the Plan, we expect that we will have indebtedness of approximately $5.8 billion upon emergence of which approximately $5.1 billion will be secured, without giving effect to the potential issuance of takeback debt that is contemplated under the Plan. We may also be able to incur substantial additional indebtedness in the future. Although, the terms of the agreements currently governing our existing indebtedness restrict our and our restricted subsidiaries’ ability to incur additional indebtedness and liens, such restrictions are subject to several exceptions and qualifications, and the indebtedness and/or liens incurred in compliance with such restrictions may be substantial. Also, these restrictions do not prevent us or our restricted subsidiaries from incurring obligations that do not constitute indebtedness. In addition, to the extent other new debt is added to our and our subsidiaries’ current debt levels, the substantial leverage risks described below would increase.
The potential significant negative consequences on our financial condition and results of operations that could result from our substantial debt include:
limitations on our ability to obtain additional debt or equity financing on favorable terms or at all;
instances in which we are unable to comply with the covenants contained in our indentures and credit agreements or to generate cash sufficient to make required debt payments, which
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circumstances have the potential of accelerating the maturity of some or all of our outstanding indebtedness;
the possibility that we may trigger the springing maturity provisions in our credit agreements;
the allocation of a substantial portion of our cash flow from operations to service our debt, thus reducing the amount of our cash flows available for other purposes, including capital expenditures and dividends that would otherwise improve our competitive position, results of operations or stock price;
requiring us to sell debt or equity securities or to sell some of our core assets, possibly on unfavorable terms, to meet payment obligations;
compromising our flexibility to plan for, or react to, competitive challenges in our business and the telecommunications industry; and
the possibility of our being put at a competitive disadvantage with competitors who, relative to their size, do not have as much debt as we do, and competitors who may be in a more favorable position to access additional capital resources.
In addition, our New First Lien Notes and New Second Lien Notes, as well as our subsidiary indebtedness are rated below “investment grade” by independent rating agencies. This has resulted in higher borrowing costs for us. These rating agencies may lower our debt ratings further, if in the rating agencies’ judgment such an action is appropriate. A further lowering of a rating would likely increase our future borrowing costs and reduce our access to capital. Our negotiations with vendors, customers and business partners can be negatively impacted if they deem us a credit risk as a result of our credit rating.
The agreements governing our current indebtedness, and the terms of future indebtedness including the exit facilities and takeback debt, contain or will contain various covenants that impose restrictions on us and certain of our subsidiaries that may reduce our operating and financial flexibility and we may not be able to satisfy our obligations under these or other, future debt arrangements.
We face significant operational and industry challenges. Pressures on our business are resulting in a continued deterioration in revenue and liquidity and there is a lower outlook for our industry as a whole. While we have undertaken initiatives to strengthen our business, we have experienced significant challenges in achieving improvements in revenue and customer trends.
The terms of our DIP financing contain, and we expect that the terms of our exit financing and takeback debt will contain covenants that, among other things, limit our ability and the ability of certain of our subsidiaries to:
incur additional debt and issue preferred stock;
incur or create liens;
redeem and/or prepay certain debt;
pay dividends on our stock or repurchase stock;
make certain investments;
engage in specified sales of assets;
enter into transactions with affiliates; and
engage in consolidation, mergers and acquisitions.
In addition, the exit facilities will require us to comply with specified financial ratios, including a maximum first lien coverage ratio. Any future indebtedness may also require us to comply with similar or other covenants.
These restrictions on our ability to operate our business could seriously harm our business by, among other things, limiting our ability to take advantage of financings, mergers, acquisitions and other corporate opportunities. Various risks, uncertainties and events beyond our control could affect our ability to comply with these covenants. Failure to comply with any of the covenants in our existing or future financing agreements could result in a default under those agreements and under other agreements containing cross-default provisions. A default would permit lenders to accelerate the maturity for the debt under these agreements and to foreclose upon any collateral securing the debt. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations, including our obligations under the notes. In addition, the limitations imposed by financing agreements on our ability to incur additional debt and to take other actions might significantly impair our ability to obtain other
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financing. This could have serious consequences to our financial condition and results of operations and could cause us to become bankrupt or insolvent.
Frontier is primarily a holding company and, as a result, we rely on the receipt of funds from our subsidiaries in order to meet our cash needs and service our indebtedness, including the notes.
Frontier is primarily a holding company and its principal assets consist of the shares of capital stock or other equity instruments of its subsidiaries. As a holding company, we depend on dividends, distributions and other payments from our subsidiaries to fund our obligations. The operating results of our subsidiaries at any given time may not be sufficient to make dividends, distributions or other payments to us in order to allow us to make payments on our indebtedness. In addition, the payment of these dividends, distributions and other payments, as well as other transfers of assets, between our subsidiaries and from our subsidiaries to us may be subject to legal, regulatory or contractual restrictions. Some state regulators have imposed, and others may consider imposing, on regulated companies, including us, cash management practices that could limit the ability of such regulated companies to transfer cash between subsidiaries or to the parent company. While none of the existing state regulations materially affect our cash management, any changes to the existing regulations or imposition of new regulations or restrictions may materially adversely affect our ability to transfer cash within our consolidated companies.
We expect to be subject to claims that will not be discharged in the Chapter 11 Cases.
The Bankruptcy Code provides that the effectiveness of a plan of reorganization discharges a debtor from substantially all debts arising prior to petition date, other than as provided in the Plan or the Confirmation Order. The Plan provides that holders of general unsecured claims, including, but not limited to, litigation claims against us and/or our subsidiaries, will have their claims “ride through” the bankruptcy, meaning there is no bar to or discharge of these claims.
In particular, litigation claims against us will survive the bankruptcy and those claims may be pursued against us on or after the Effective Date, including but not limited to the amended consolidated class action complaint filed in the United States District Court for the District of Connecticut on April 30, 2018 on behalf of certain purported stockholders against Frontier, certain of its current and former directors and officers and the underwriters of certain Frontier securities offerings asserting, among other things, violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, Section 20(a) of the Exchange Act and Sections 11 and 12 of the Securities Act in connection with certain disclosures relating to the CTF Acquisition, and seeking damages and equitable and injunctive relief, and related derivative complaints against current and former directors. See Note 22 to our Consolidated Financial Statements for further information.
To the extent such claims could have been asserted prior to bankruptcy or arose during the bankruptcy, such claims can be asserted after we emerge from bankruptcy.
In addition to potential liability for claims asserted against us, we will have ongoing obligations to indemnify our former officers and directors and certain underwriters in connection with litigation as we did before the bankruptcy. In particular, claims continue to be pursued against us and certain of our current and former directors and officers as well as certain underwriters, in connection with the securities class action described above. These claims consist of claims under the Federal securities laws related to, among other things, allegedly misleading statements or omissions with respect to certain disclosures relating to the CTF Acquisition. In addition to potential liability for claims asserted against us, we also have ongoing obligations to indemnify our officers and directors in connection with this litigation, as well as obligations to indemnify the underwriters of the relevant securities offering. To the extent we have any obligations to indemnify our directors and officers or the underwriters in connection with this litigation, such obligations will remain our obligations during and after the bankruptcy. Any such indemnification obligations could be material.
In October 2013, the California Attorney General’s Office notified certain Verizon companies, including one of the subsidiaries that we acquired in the CTF Acquisition, of potential violations of California state hazardous waste statutes primarily arising from the disposal of electronic components, batteries and aerosol cans at certain California facilities. We are cooperating with this investigation. We have accrued an amount for potential penalties that we deem to be probable and reasonably estimated. This investigation will continue despite our bankruptcy. While we do not expect that any potential penalties, if ultimately incurred, will be material in comparison to the established accrual, the timing and ultimate outcome are uncertain.
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The outcome and timing of these potential matters is uncertain, and it is possible that any one or more of these matters could result in material costs, penalties, fines, sanctions or injunctive relief. As a result, an adverse ruling with respect to these potential matters could have a material impact on our financial condition, results of operations, liquidity, and cash flows.
The negotiations regarding the Restructuring have consumed and will continue to consume a substantial portion of the time and attention of our management, which may have an adverse effect on our business and results of operations, and we may face increased levels of employee attrition.
Our management has spent, and continues to be required to spend, a significant amount of time and effort focusing on the Restructuring. This diversion of attention may have a material adverse effect on the conduct of our business, and, as a result, on our financial condition and results of operations, particularly if the Restructuring is protracted. During the pendency of the Restructuring, our employees will face considerable distraction and uncertainty and we may experience increased levels of employee attrition. A loss of key personnel or material erosion of employee morale could have a materially adverse effect on our ability to meet customer expectations, thereby adversely affecting our business and results of operations. The failure to retain or attract members of our management team and other key personnel could impair our ability to execute our strategy and implement operational initiatives, thereby having a material adverse effect on our financial condition and results of operations. Likewise, we could experience losses of customers who may be concerned about our ongoing long-term viability.
In certain instances, the Chapter 11 Cases may be converted to a case under Chapter 7 of the Bankruptcy Code.
Following commencement of the Chapter 11 Cases, upon a showing of cause, the Bankruptcy Court may convert such Chapter 11 Cases to cases under Chapter 7 of the Bankruptcy Code (Chapter 7). In such event, a Chapter 7 trustee would be appointed or elected to liquidate our assets for distribution in accordance with the priorities established by the Bankruptcy Code. We believe that liquidation under Chapter 7 would result in significantly smaller distributions being made to our creditors than those provided for in a Plan because of (i) the likelihood that the assets would have to be sold or otherwise disposed of in a distressed fashion over a short period of time rather than a controlled manner and as a going concern, (ii) additional administrative expenses involved in the appointment of a Chapter 7 trustee, and (iii) additional expenses and claims, some of which would be entitled to priority, that would be generated during the liquidation and from the rejection of leases and other executory contracts in connection with a cessation of operations.
Upon emergence from bankruptcy, our historical financial information may not be indicative of our future financial performance.
Our capital structure will likely be significantly altered under the Plan. Upon emergence from bankruptcy, we expect to adopt fresh-start accounting in accordance with ASC 852, Reorganizations. Under fresh-start accounting rules that we expect will apply to us upon the Effective Date, our assets and liabilities would be adjusted to fair value and our accumulated deficit would be restated to zero. In addition, we may adopt accounting policy changes as part of fresh-start accounting and such policies could result in material changes to our financial reporting and results. Accordingly, we expect that our financial condition and results of operations following our emergence from Chapter 11 will not be comparable to the financial condition and results of operations reflected in our historical consolidated financial statements. Further, the Plan could materially change the amounts and classifications reported in our historical consolidated financial statements, which do not give effect to any adjustments to the carrying value of assets or amounts of liabilities that might be necessary as a consequence of confirmation of a plan of reorganization. In connection with our emergence from Chapter 11, it is also possible that additional restructuring and related charges may be identified and recorded in future periods. Any such charges could be material to our financial condition, results of operations, liquidity, and cash flows.
Upon emergence from bankruptcy, the composition of our board of directors will, and our management team may, change significantly.
Under the Plan, the composition of our board of directors will change significantly upon emergence. Any new directors are likely to have different backgrounds, experiences and perspectives from those individuals who currently serve on our board of directors. For example, it was announced on September 1, 2020 that John Stratton has been selected to serve as executive chairman of our board of directors from emergence. While we expect to engage in an
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orderly transition process as we integrate newly appointed board members, our board of directors following emergence from bankruptcy may have different views on strategic initiatives and a range of issues that will determine the future of the Company. As a result, the future strategy and plans of the Company may differ materially from those of the past.
Pursuant to the Restructuring Support Agreement, the finance committee of our board of directors together with the Management Selection Designees (as defined therein) commenced a management selection process for the Reorganized Company with respect to certain key management positions. Arising out of this process, we recently announced that Nick Jeffery will become Chief Executive Officer as of March 4, 2021 and will join our board of directors upon emergence. The composition of our management team may continue to change significantly. Qualified individuals are in high demand and we may incur significant costs to attract them. In addition, the loss of any of our senior management or other key employees or changes in the composition of our management team could materially and adversely affect our ability to execute their strategy and implement operational initiatives and have a material and adverse effect on our financial condition, liquidity and results of operations.
We expect to make contributions to our pension plan in future years, the amount of which will be impacted by volatility in asset values related to Frontier’s pension plan and/or changes in pension plan assumptions.
We made contributions of $64 million and $166 million to our pension plan in 2020 and 2019, respectively, and we expect to continue to make contributions in future years. Required pension plan contributions for the fiscal year 2020 were estimated to be $184 million, including interest owed on contribution deferrals. Certain provisions of the CARES Act permit employers to postpone making pension contributions due in 2020 until January 4, 2021 and we postponed the remaining 2020 contributions of approximately $147 million, in the aggregate, as permitted by the CARES Act. In addition, we filed an application with the IRS for a waiver of the minimum funding standard under Section 412(c) of the Internal Revenue Code, and Section 302(c) of the Employee Retirement Income Security Act of 1974 for the pension plan year beginning January 1, 2020. With the waiver we would spread the 2020 contribution, determined as of January 1, 2020 (approximately $173 million in total), over the five subsequent plan years, in addition to the minimum contributions owed for those plan years.
Volatility in our asset values, liability calculations, or returns may impact the costs of maintaining our pension plan and our future funding requirements. Any future contribution to our pension plan could be material, and could have a material adverse effect on our liquidity by reducing cash flows.
Significant changes in discount rates, rates of return on pension assets, mortality tables and other factors could adversely affect our earnings and equity and increase our pension funding requirements.
Pension costs and obligations are determined using actual results as well as actuarial valuations that involve several assumptions. The most critical assumptions are the discount rate, the long-term expected return on assets and mortality tables. Other assumptions include salary increases, lump sum payments, and retirement age. Some of these assumptions, such as the discount rate and return on pension assets, are reflective of economic conditions and largely out of our control. Changes in the pension assumptions could have a material impact on pension costs and obligations, and could in turn have a material adverse effect on our earnings, equity and funding requirements.
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We may not be able to fully utilize our net operating loss and other tax carryforwards.
As of December 31, 2020, we had federal net operating loss (NOLs) carryforwards of approximately $1.8 billion and state NOL carryforwards of approximately $9.9 billion. However, our ability to utilize these NOLs to offset taxable income may be limited in the future.
A corporation that undergoes an “ownership change” is typically subject to limitations on its ability to utilize its pre-ownership change NOLs to offset future taxable income. In general, under the U.S. Internal Revenue Code (IRC), an ownership change occurs if the aggregate stock ownership of certain stockholders (generally 5% stockholders, applying certain look-through and aggregation rules) increases by more than 50 percentage points over such stockholders’ lowest percentage ownership during the testing period (generally three years). Purchases or sales of our common stock in amounts greater than specified levels could create a limitation on our ability to utilize our NOLs for tax purposes in the future. Limitations imposed on our ability to utilize NOLs could cause U.S. federal and state income taxes to be paid earlier than would be paid if such limitations were not in effect.
Furthermore, to the extent our NOLs were generated in taxable years beginning before January 1, 2018 (and therefore can only be carried forward for 20 years), we may not be able to generate sufficient taxable income to utilize our NOLs before they expire.
In an effort to safeguard our NOLs, our Board of Directors adopted a shareholder rights plan in July 2019, under which Frontier’s shareholders of record as of the close of business on July 11, 2019 received one preferred share purchase right for each share of common stock outstanding. Pursuant to the rights plan, if a shareholder (or group) acquires beneficial ownership of 4.9 percent or more of the outstanding shares of Frontier’s common stock without prior approval of our Board of Directors or without meeting certain customary exceptions, the rights would become exercisable and entitle shareholders (other than the acquiring shareholder or group) to purchase additional shares of Frontier at a significant discount and result in significant dilution in the economic interest and voting power of the acquiring shareholder or group. Although the rights plan is intended to reduce the likelihood of an “ownership change” that could adversely affect us, there is no assurance that the restrictions on transferability in the rights plan will prevent all transfers that could result in an “ownership change”. Prior to the filing of the Chapter 11 Cases, we determined that the Restructuring, the entry into the Restructuring Support Agreement, the approval of the Plan, the entry into the Definitive Documents (as defined in the Plan), and the consummation of the Restructuring and the other transactions contemplated by the Plan and the Definitive Documents are an “Exempted Transaction” as defined in the Rights Plan.
On May 26, 2020, in connection with Frontier’s Chapter 11 cases, the U.S. Bankruptcy Court for the Southern District of New York entered an order approving certain notification and hearing procedures for transfers of, and declarations of worthlessness with respect to, beneficial ownership of common stock (the “Order”). The Order is designed to protect Frontier’s NOL carryforwards from the effect of a premature “ownership change”, and to preserve Frontier’s ability to rely on certain favorable rules that can apply to “ownership changes” occurring in connection with the implementation of a bankruptcy plan of reorganization, but we cannot guarantee that we will be able to fully protect the NOL carryforwards. The Order requires “substantial shareholders” and “50-percent shareholders” (each as defined therein), and certain persons that might become a substantial shareholder or 50- percent shareholder, to provide notice before making certain transfers of beneficial ownership of common stock or declaring its beneficial ownership of stock worthless for U.S. income tax purposes, respectively. After receiving notice, Frontier is permitted to object, whereupon such action remains ineffective pending final resolution. Any action taken in violation of such procedures is invalid.
The impact of the Restructuring on our tax attributes such as federal and state NOLs and deferred tax asset relating to disallowed interest expense (“relevant DTAs”) will depend on whether the Restructuring is structured for tax purposes as (i) a taxable disposition of substantially all of the assets and/or subsidiary stock of the Company, (ii) a recapitalization of the Company, or (iii) some other alternative structure. If structured as a taxable disposition, we anticipate that our relevant DTAs (if any) remaining after the Restructuring will not be available to the Reorganized Company (the common parent of New Frontier Issuer’s consolidated federal tax group). If structured as a recapitalization, we anticipate that we will experience an ownership change, and thus our relevant DTAs (if any) remaining after the restructuring will be subject to limitation, such that the Reorganized Company may not derive all of the benefits of any such remaining NOLs. While not free from doubt, we expect that the Restructuring will be structured as a taxable disposition of substantially all of our assets and/or subsidiary stock, in which case our relevant DTAs will not be available to the Reorganized Company. In either case, the consummation of the Restructuring may
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have an adverse tax impact on us and could give rise to U.S. federal, state or local income tax liabilities. If an “ownership change” were to occur prior to the conclusion of the Restructuring, any tax liability recognized in connection with the Restructuring, particularly if the Restructuring is structured as a taxable disposition of substantially all of our assets and/or subsidiary stock, could be meaningfully increased.
Risks Related to Our Business
If our current and future initiatives to increase our revenues, profitability and cash flows are unsuccessful, our financial position and results of operations will be negatively and adversely impacted.
We must produce adequate revenues and operating cash flows that, when combined with cash on hand and borrowing under our revolving credit facility and other financings, will be sufficient to service our debt, fund our capital expenditures, pay our taxes, and fund our pension and other employee benefit obligations. We continue to experience revenue declines as compared to prior years. We have undertaken, and expect to continue to undertake, programs and initiatives with the objective of improving revenues, profitability, and cash flows by enhancing our operations and customer service and support processes. In particular, under our modernization plan we intend to grow our fiber network and optimize our existing copper network at attractive IRRs in order to increase our revenues and customer trends, and in turn increase our profitability and cash flows. These programs and initiatives require significant resources and may divert attention from ongoing operations and other strategic initiatives. Despite similar efforts in the past, we have historically experienced significant challenges in achieving improvements in revenue and customer trends. For example, in the second quarter of 2019, we significantly reduced our forecast for the anticipated long-term results of a transformation program and we continue to evolve our operational strategies and priorities.
There can be no assurance that our current and future initiatives and programs will be successful, and even if they are successful, the actual returns from these programs and initiatives may be less than anticipated or may take longer to realize than we anticipate. For example, we may not reach our targets to expand our existing fiber network on the timelines we anticipate, or at all. If current and future programs and initiatives are unsuccessful, result in lower returns than we anticipate, or take longer than we anticipate, it could have a material adverse effect on our financial position and our results of operations.
The effects of COVID-19, including its impact on market conditions, may adversely impact our business and hinder our exit financing and our ability to emerge from Chapter 11.
The outbreak of COVID-19 and the resulting economic downturn have adversely affected the financial markets and the economy more generally and could result in an economic downturn, which could adversely impact our business. As of December 31, 2020, the markets remain volatile and the economic outlook remains uncertain. We are relying on the equity and debt capital markets in order to finance our emergence from Chapter 11. Adverse capital market conditions related to COVID-19 (or otherwise) could make it more difficult or expensive, or even infeasible, to emerge from Chapter 11 through the use of one or more capital market financing transactions.
With more people staying at home and an increased reliance on broadband and telephone networks, the FCC issued the Keep Americans Connected Pledge on March 11, 2020, which provided for telecommunication providers, including Frontier, to not terminate service and to waive any late payment fees through June 30, 2020 for certain customers due to economic circumstances they are facing related to COVID-19 as well as making WIFI hotspots available to all Americans who need them. In addition, some of the states we operate in have issued executive orders as a result of COVID-19 that further impact our business, including prohibiting the disconnection of services for customers for the length of the state of emergency. The initial Keep Americans Connected Pledge has expired; however, state and federal governments continue to ask companies to aid in pandemic response. While certain customers have taken advantage of our COVID-19 related relief programs, as of December 31, 2020, very few had past due balances beyond the point of normal disconnection. Given the unprecedented and evolving nature of the pandemic and the swift moving response of multiple levels of government as well as the uncertainty of funding available for services provided, the full impact of these changes and potential changes on the Company are unknown at this time.
While overall the operational and financial impacts to our business of the COVID-19 pandemic for the year ended December 31, 2020 were not significant, we continue to closely monitor the ongoing impact to our employees, our customers, our business and our results of operations. We have experienced a slowdown in service activations and an increase in deactivations for our SMB customers; to date, these negative impacts have been partially offset
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by higher residential activations and lower churn, but there can be no assurance they will continue to be offset. We also continue to closely track our customers’ payment activity as well as external factors, including the expiration of federal wage subsidies for individuals and small businesses which could materially impact payment trends. With more people working from home, we have experienced higher demands on our network and higher sales activity for our residential broadband service offering. This sustained increase in network demand could lead to reduced network availability and potential outages, which may impair our ability to meet customer service level commitments, lead to higher costs, higher customer churn and potential increased regulatory actions. These potential changes, among others, could have a material financial impact to Frontier.
In addition to committing to the Keep Americans Connected Pledge, our response to COVID-19 has included several operational safety precautions such as limiting our product offerings in certain markets for certain periods, including not allowing our field service employees to enter a customer’s home for a period of time, a limitation which is no longer in effect. We are continuing to require personal protective equipment on any employees entering a customer location. Through December 31, 2020, we had not experienced any significant disruptions in our supply chain; however, some of our business partners, particularly those vendors operating outside of the United States, have been more greatly impacted which has affected our service levels and distribution of work, and resulted in disruptions to our supply chain or other aspects of our business.
Additionally, potential longer-term impacts of COVID-19 on our business include the potential for higher borrowing costs due to the increasing difference in the higher yield of lower-rated debt as compared to the lower yield of higher-rated debt of similar maturity and incremental financing needs. Our analysis of the potential impact of COVID-19 is subject to change. We are unable to predict the timing, duration or intensity of the COVID-19 situation and its effects on the business and general economic conditions in the United States of America. We continue to monitor and assess the impact of the COVID-19 pandemic. Our financial condition, results of operations, liquidity and cash flows could be significantly affected by the outbreak of the COVID-19 pandemic.
There can be no assurance as to the effect that the Transactions and Chapter 11 Cases will have on our relationships with our business partners.
There can be no assurance as to the effect that the Transactions and being in Chapter 11 Cases will have on our relationships with our suppliers, customers, service providers or employees, nor can there be any assurance as to the effect on such relationships of any delay in the completion of the Transactions. To the extent that any of these events result in the tightening of payment or credit terms, increases in the price of supplied goods, or the loss of one or more major customers, service providers or key employees, it could have a material adverse effect on our business, financial condition, liquidity and results of operations.
We face intense competition.
The communications industry is extremely competitive. Through mergers and various service expansion strategies, service providers are striving to provide integrated solutions both within and across geographic markets. Our competitors include CLECs, internet service providers, wireless companies, OTT, VoIP providers and cable companies, some of which may be subject to less regulation than we are. These entities may provide services competitive with the services that we offer or intend to introduce. For example, our competitors may seek to introduce networks in our markets that are competitive with or superior to our copper-based networks in those markets. Several competitors were successful bidders in the RDOF auction in areas within Frontier’s service footprint and we expect these competitors will deploy expanded services in these areas that will compete with our services. We also believe that wireless and cable providers have increased their penetration of various services in our markets. We expect that competition will remain robust. Our revenue and cash flow will be adversely impacted if we cannot reverse our customer losses or continue to provide high-quality services.
We cannot predict which of the many possible future technologies, products or services will be important in order to maintain our competitive position or what expenditures will be required to develop and provide these technologies, products or services. Our ability to compete successfully will depend on the effectiveness of capital expenditure investments in our properties, our marketing efforts, our ability to deliver high quality customer service, our ability to anticipate and respond to various competitive factors affecting the industry, including a changing regulatory environment that may affect our business and that of our competitors differently, new services that may be introduced, changes in consumer preferences, or habits, demographic trends, economic conditions and pricing
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strategies by competitors. Increasing competition may reduce our revenues and increase our marketing and other costs as well as require us to increase our capital expenditures and thereby decrease our cash flows.
We may be unable to meet the technological needs or expectations of our customers and may lose customers as a result.
The communications industry is subject to significant changes in technology and replacing or upgrading our infrastructure to keep pace with such technological changes could result in significant capital expenditures. If we do not replace or upgrade technology and equipment and manage broadband speeds and capacity as necessary, we may be unable to compete effectively because we will not be able to meet the needs or expectations of our customers.
In addition, enhancements to product offerings may influence our customers to consider other service providers, such as cable operators or wireless providers. We may be unable to attract new or retain existing customers from cable companies due to their deployment of enhanced broadband and VoIP technology. In addition, new capacity services for wireless broadband technologies may permit our competitors to offer broadband data services to our customers throughout most or all of our service areas. Any resulting inability to attract new or retain existing customers could adversely impact our business and results of operations in a material manner.
Some of our competitors have superior resources, which may place us at a disadvantage.
Some of our competitors have market presence, engineering, technical, marketing and financial capabilities which are substantially greater than ours. In addition, some of these competitors have significantly less debt and are able to raise capital at a lower cost than we are able to. Consequently, some of these competitors may be able to develop and expand their communications and network infrastructures more quickly, adapt more swiftly to new or emerging technologies and changes in customer requirements, including leading edge technologies such as artificial intelligence, machine learning and various types of data science, as well as take advantage of acquisition and other opportunities more readily and devote greater resources to the marketing and sale of their products and services than we will be able to. Additionally, the greater brand name recognition of some competitors may require us to price our services at lower levels in order to retain or obtain customers. Finally, the cost advantages and greater financial resources of some of these competitors may give them the ability to reduce their prices for an extended period of time if they so choose. Our business and results of operations may be materially adversely impacted if we are not able to effectively compete.
We rely on network and information systems and other technology, and a disruption or failure of such networks, systems or technology as a result of computer viruses, cyber-attacks, misappropriation of data or other malfeasance, as well as outages, accidental releases of information or similar events, may disrupt our business and materially impact our results of operations, financial condition and cash flows.
Our information technology networks and infrastructure may be subject to damage, disruptions or shutdowns due to computer viruses, cyber-attacks or breaches, employee or third-party error or malfeasance, power outages, communication or utility failures, systems failures, natural disasters or other catastrophic events.
Further, our network and information systems are subject to various risks related to third parties and other parties we may not fully control. We use encryption and authentication technology licensed from third parties to provide secure transmission of confidential information, including our business data and customer information. Similarly, we rely on employees in our network operations centers, data centers, call centers and retail stores to follow our procedures when handling sensitive information. While we select our third-party business partners and employees carefully, we do not control their actions, which could expose us to cyber-security risks. In addition, our customers using our network to access the Internet may become victim to malicious and abusive Internet activities, such as unsolicited mass advertising (or spam), peer-to-peer file sharing, distribution of viruses, worms and other destructive or disruptive software; these activities could adversely affect our network, result in excessive call volume at our call centers and damage our or our customers’ equipment and data.
While we maintain security measures, disaster recovery plans and business continuity plans for our business and are continuously working to upgrade our existing technology systems and provide employee training around the cyber risks we face, these risks are constantly evolving and are challenging to mitigate. Like many companies, we are the subject of increasingly frequent cyber-attacks. Any unauthorized access, computer viruses, accidental or intentional release of confidential information or other disruptions could result in misappropriation of our or our
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customers’ sensitive information; financial loss; reputational harm; increased costs, such as those relating to remediation or future protection; customer dissatisfaction, which could lead to a decline in customers and revenue; government investigations and legal claims or proceedings, fines and other liabilities. There can be no assurance that the impact of such incidents would not be material to our results of operations, financial condition or cash flows.
Our business is sensitive to continued relationships with our wholesale customers.
We have substantial business relationships with other communications carriers for which we provide service. We seek to maintain and grow our business with these customers, however we face significant competition for this wholesale business. Additionally, the Restructuring may make our business partners less willing to do business with us and could negatively impact our business. As a result, our revenues and results of operations could be materially and adversely affected.
A significant portion of our workforce is represented by labor unions.
As of December 31, 2020, approximately 70% of our total employees were represented by unions and were subject to collective bargaining agreements. Of this unionized workforce, approximately 54% are covered by collective agreements that expire in 2021 and approximately 16% are covered by collective bargaining agreements that expire in 2022. In addition, approximately 30% of the unionized workforce are covered by collective bargaining agreements that are on extensions from the dates on which they originally expired in 2019 or 2020.
We cannot predict the outcome of negotiations of the collective bargaining agreements covering our employees. If we are unable to reach new agreements or renew existing agreements, employees subject to collective bargaining agreements may engage in strikes, work slowdowns or other labor actions, which could materially disrupt our ability to provide services. New labor agreements or the renewal of existing agreements may impose significant new costs on us, which could adversely affect our financial condition and results of operations in the future.
If we are unable to hire or retain key personnel, we may be unable to operate our business successfully.
Our success will depend in part upon the continued services of our management team. We cannot guarantee that our key personnel will not leave or compete with us. The loss, incapacity or unavailability for any reason of key members of our management team could have a material impact on our business. In addition, the Restructuring may make it more difficult for us to attract and retain management and other key personnel, which could impair our ability to execute our strategy and implement operational initiatives, thereby having a material adverse effect on our financial condition and results of operations.
Negotiations with the providers of content for our video systems may not be successful, potentially resulting in our inability to carry certain programming channels on our video systems, which could result in the loss of subscribers. Alternatively, because of the power of some content providers, we may be forced to pay an increasing amount for some content, resulting in higher expenses and lower profitability.
We continue to execute on our video strategy of achieving savings by renegotiating contracts to lower content costs or dropping channels entirely. The content owners of the programming that we carry on our multichannel video systems are the exclusive provider of the channels they offer. If we are unable to reach a mutually-agreed contract with a content owner, including pricing and carriage provisions, our existing agreements to carry this content may not be renewed, resulting in the blackout of these channels. The loss of content could result in our loss of customers who place a high value on the particular content that is lost. In addition, many content providers own multiple channels. As a result, we typically have to negotiate the pricing for multiple channels rather than one and carry and pay for content that customers do not value, in order to have access to other content that customers do value. Some of our competitors have materially larger scale than we do, and may, as a result, be better positioned than we are in such negotiations. As a result of these factors, the expense of content acquisition may continue to increase, and this could result in higher expenses and lower profitability.
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We are subject to a significant amount of litigation, which could require us to pay significant damages or settlements.
We are party to various legal proceedings, including, from time to time, individual actions, class and putative class actions, and governmental investigations, covering a wide range of matters and types of claims including, but not limited to, general contract disputes, billing disputes, rights of access, taxes and surcharges, consumer protection, advertising, sales and the provision of services, trademark and patent infringement, employment, regulatory, tort, claims of competitors and disputes with carriers. Litigation is subject to uncertainty and the outcome if individual matters is not predictable. We may incur significant expenses in defending these lawsuits. In addition, we may be required to pay significant awards or enter into settlements with governmental or other entities which impose significant financial and business remediation measures.
We rely on a limited number of key suppliers and vendors.
We depend on a number of suppliers and vendors for equipment and services relating to our network infrastructure, including network elements such as digital and internet protocol switching and routing equipment, optical and copper transmission equipment, broadband connectivity equipment, various forms of customer premise equipment, optical fiber, wireless equipment, as well as the software that is used throughout our network to manage traffic, network elements, and other functions critical to our operations. If any of our major suppliers were to experience disruption, supply-chain interruptions, financial difficulties, or other unforeseen problems delivering, maintaining, or servicing these network components on a timely basis, our operations could suffer significantly. For example, the ongoing COVID-19 pandemic may affect the ability of our suppliers and vendors to provide products and services to us and may adversely impact our operations. In addition, due to changes in the communications industry, the suppliers of many of these products and services have been consolidating. In the event it were to become necessary to seek alternative suppliers and vendors, we may be unable to obtain satisfactory replacement supplies, services, or utilities on economically-attractive terms, on a timely basis, or at all, which could increase costs or cause disruptions in our services.
Risks Related to Regulation and Oversight
Changes in federal or state regulations may reduce the switched access charge revenues we receive.
A portion of Frontier’s total revenues ($89 million, or 1% in 2020 and $102 million, or 1%, in 2019) are derived from switched access charges paid by other carriers for services we provide in originating intrastate and interstate long-distance traffic. Frontier expects a portion of our revenues will continue to be derived from switched access charges paid by these carriers for these services. The rates Frontier can charge for switched access are regulated by the FCC and state regulatory agencies.
In 2011, the FCC adopted the 2011 Order regarding Intercarrier Compensation, which is the payment framework that governs how carriers compensate each other for the exchange of voice traffic between carriers. However, the 2011 Order did not resolve all questions on Intercarrier Compensation. In an October 2020 order, the FCC adopted a 2-year transition of 1-800 (toll free) switched access charges to bill and keep beginning July 2021, thus further reducing this declining revenue stream. The FCC continues to consider the possibility of further reducing access rates in the future. We cannot predict when or how the FCC would implement any changes originating access rates, and future reductions in these revenues may directly affect our profitability and cash flows.
In April 2017, the FCC issued an order that resulted in substantial deregulation in a number of our markets for special access services where the market is determined to be competitive and the transport market nationwide. While some aspects of the 2017 Order were appealed by stakeholders the 8th Circuit issued a decision that upheld the majority of the 2017 Order. The FCC has since reaffirmed the portions of the 2017 Order that were vacated, and no party appealed the FCC’s second decision.
Certain states also have their own open proceedings to address reform to originating intrastate access charges, other intercarrier compensation, and state universal service funds. Although the FCC has pre-empted state jurisdiction on most access charges, many states could consider moving forward with their proceedings. We cannot predict when or how these matters will be decided or the effect on our subsidy or switched access revenues. However, future reductions in our subsidy or switched access revenues may directly affect our profitability and cash flows as those regulatory revenues do not have an equal level of associated variable expenses.
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A portion of Frontier’s total revenues ($344 million, or 5%, in 2020 and $365 million, or 4%, in 2019) are derived from federal and state subsidies for rural and high-cost support, that consists primarily of CAF II support, as well as Federal High Cost support and various state subsidies. The FCC’s 2011 Order changed how federal subsidies are calculated and disbursed. These changes transitioned the USF (Universal Service Fund), which supported voice services in high-cost areas, to the CAF (Connect America Fund), which supports broadband deployment in high-cost areas. In June 2015, we accepted the FCC’s offer of support to price cap carriers under the CAF Phase II program in 25 states, which, excluding the support related to the Northwest Operations divested on May 1, 2020, provides $313 million in annual support through 2021 in return for our commitment to make broadband available to households within our footprint.
On January 30, 2020, the FCC adopted an order establishing the RDOF program. The FCC held the RDOF Phase I auction from October 29, 2020 through November 25, 2020 and announced the results on December 7, 2020. Frontier was awarded approximately $371 million over ten years to build gigabit-capable broadband over a fiber-to-the-premises network to approximately 127,000 locations across eight states (California, Connecticut, Florida, Illinois, New York, Pennsylvania, Texas, and West Virginia). Frontier submitted its Long Form application to the FCC on January 29, 2021 and, assuming the long-form application is granted by the FCC, anticipates that it will begin receiving funding on January 1, 2022. The program will not be as favorable to us as the CAF Phase II program, and this program will result in a material reduction in the level of funding that we receive from the FCC under the CAF Phase II program (approximately $332 million in annual support) to approximately $37 million in annual support under RDOF beginning in 2022. Our inability to replace a substantial portion of this reduction, will in turn result in a material reduction in our revenue and operating income, and could have a material adverse effect on our business, financial condition and results of operations.
In addition, we are required to contribute to the USF and the FCC allows us to recover these contributions through a USF surcharge on customers’ bills. This surcharge accounted for $193 million of revenue in 2020 and $221 million in 2019. Our inability to recover USF contributions could have a material adverse effect on our business or results of operations.
Future reductions in these subsidies, the inability to replace a substantial portion of our CAF II or RDOF funding, or our inability to recover USF contributions, could have a material adverse effect on our business or results of operations.
While we plan to implement a number of operational initiatives before and following our emergence from bankruptcy in order to realize certain cost savings, our ability to achieve such cost savings on a timely basis, or at all, is subject to various risks and assumptions by our management, which may or may not be realized. In addition, our ability to achieve such costs savings is subject to the incurrence of other costs in our operations, which may be material and may offset all or a portion of such cost savings. As a result, we may not be able to realize these anticipated cost savings on a timely basis or at all. Even if we do realize some or all of such cost savings, they may be insufficient to offset any reductions in subsidies or CAF Phase II funding we receive, or our inability to recover USF contributions.
Frontier and our industry will likely remain highly regulated, and we could incur substantial compliance costs that could constrain our ability to compete in our target markets.
As an incumbent local exchange carrier, some of the services we offer are subject to significant regulation from federal, state and local authorities. This regulation could impact our ability to change our rates, especially on our basic voice services and our access rates and could impose substantial compliance costs on us. In some jurisdictions, regulation may restrict our ability to expand our service offerings. In addition, changes to the regulations that govern our business may have an adverse effect on our business by reducing the allowable fees that we may charge, imposing additional compliance costs, reducing the amount of subsidies or otherwise changing the nature of our operations and the competition in our industry. At this time, it is unknown how these regulations, regulatory oversight, or changes to these regulations will affect Frontier’s operations or ability to compete in the future.
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
FCC rulemakings and state regulatory proceedings, including those relating to intercarrier compensation, universal service and broadband services, could have a substantial adverse impact on our operations.
Our Internet access offerings could become subject to additional laws and regulations as they are adopted or applied to the Internet. As the significance of the Internet expands, federal, state and local governments may pass laws and adopt rules and regulations, including those directed at privacy, or apply existing laws and regulations to the Internet (including Internet access services), and related matters are under consideration in both federal and state legislative and regulatory bodies. Although the FCC has pre-empted state jurisdiction on network neutrality and privacy, many states, including California, have considered or are moving forward with legislation on these or other Internet-related issues. Multiple states have taken executive or legislative action directed at reinstating aspects of the FCC’s 2015 Order. We cannot predict whether the outcome of expected or pending challenges to the FCC’s order or subsequent state actions will prove beneficial or detrimental to our competitive position. It is also unclear the degree to which the outcome of the November 2020 elections may impact federal or state legislative or regulatory action on net neutrality and privacy issues.
We are subject to the oversight of certain federal and state agencies that have in the past, and may in the future, investigate or pursue enforcement actions against us relating to consumer protection matters.
Certain federal and state agencies, including state attorneys general, monitor and exercise oversight related to consumer protection matters, including those affecting the communications industry. Such agencies have in the past, and may in the future, choose to launch an inquiry or investigation of our business practices in response to customer complaints or other publicized customer service issues or disruptions, including regarding the failure to meet technological needs or expectations of our customers. Such inquiries or investigations could result in reputational harm, enforcement actions, litigation, fines, settlements and/or operational and financial conditions being placed on the company, any of which could materially and adversely affect our business.
We are subject to the oversight of certain federal and state regulatory agencies regarding commitments the Company made and others that were imposed by the regulatory agencies in association with securing federal and state regulatory approval for the Restructuring.
The Company made a number of affirmative commitments to federal and certain state regulators to secure approval for the Restructuring, including specific investment, broadband service deployment, service quality improvements, reporting, and compliance commitments. Regulators will monitor and may launch compliance inquiries or investigations and if the Company is found to have failed to comply with its obligations it could result in reputational harm, enforcement actions, litigation, penalties, fines, settlements and/or operational and financial conditions being placed on the Company, any of which could materially and adversely affect our business.
Tax legislation may adversely affect our business and financial condition.
Tax laws are dynamic and continually change as new laws are passed and new interpretations of the law are issued or applied. For example, on December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the TCJA. The TCJA makes broad and complex changes to the U.S. tax code and, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest, allows for the expensing of capital expenditures, and imposes limitations on the use of net operating losses arising in taxable years beginning after December 31, 2017. The reduction of the U.S. corporate tax rate results in a decreased valuation of our deferred tax asset and liabilities.
More recently, on March 18, 2020, the Families First Coronavirus Response Act (FFCR Act), and on March 27, 2020, the CARES Act were each enacted in response to the COVID-19 pandemic. The FFCR Act and the CARES Act contain numerous income tax provisions, such as relaxing limitations on the deductibility of interest and the use of net operating losses arising in taxable years beginning after December 31, 2017. The Company is continuing to evaluate the impact of this legislation on its consolidated financial position, results of operations, and cash flows. Future regulatory guidance under the FFCR Act and the CARES Act (as well as under the TCJA) may be forthcoming, and such guidance could ultimately increase or lessen their impact on our business and financial condition. It is also highly possible that Congress will enact additional legislation in connection with the COVID-19 pandemic, some of which could have an impact on the Company.
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
The determination of the benefit from (or provision for) income taxes requires complex estimations and significant judgments concerning the applicable tax laws. If in the future any element of tax legislation changes the related accounting guidance for income tax, it could affect our income tax position and we may need to adjust the benefit from (or provision for) income taxes accordingly.
Risks Related to Our Common Stock
Under the Plan, we currently anticipate that our common stock will be canceled and that holders of such common stock will not receive any distribution with respect to, or be able to recover any portion of, their investments.
The Plan provides that all equity interests of existing equity holders will be extinguished. Amounts invested by the holders of our common stock will not be recoverable and such securities will have no value. Trading prices for these securities may bear little or no relationship to the actual recovery, if any, by holders of in the Chapter 11 Cases. Furthermore, the Plan provides that certain holders of our debt will receive 100% of the common equity (the New Common Stock) of the Company or an entity formed to indirectly acquire substantially all of the assets and/or subsidiary stock of the Reorganized Company, subject to dilution by certain permitted management incentive plans. There can be no assurance that an active public trading market for our common stock will be sustained, or that there will be an active public trading market for the New Common Stock of the Reorganized Company.
As a result of our filing for protection under the federal bankruptcy laws, our common stock has been delisted from NASDAQ which could have a material adverse effect on our business, results of operations, financial condition, liquidity and stock price.
Following our filing for protection under the federal bankruptcy laws, our common stock was delisted from NASDAQ, which could negatively impact the trading price, trading volume, liquidity, availability of price quotations, news and analyst coverage of, and have other material adverse effects on, our common stock. Our common stock is now quoted on the OTC Pink Sheets market maintained by the OTC Market Group, Inc. under the trading symbol “FTRCQ.” The lack of an active market may impair the ability of holders of our common stock to sell their shares at the time they wish to sell them or at a price that they consider reasonable. The lack of an active market may also reduce the fair market value of the shares of our common stock. Furthermore, because of the limited market and generally low volume of trading in our common stock, the price of our common stock could be more likely to be affected by broad market fluctuations, general market conditions, fluctuations in our operating results, changes in the markets’ perception of our business, and announcements made by us, our competitors, parties with whom we have business relationships or third parties with interests in the Chapter 11 Cases.
Additionally, the delisting may adversely impact the perception of the Company’s financial condition and cause reputational harm with investors and parties conducting business with the Company. The perceived decreased value of employee equity incentive awards may reduce their effectiveness in encouraging performance and retention. Each of these occurrences, individually or in the aggregate, could have a material adverse effect on our business.
‎
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

---

ITEM 2. PROPERTIES
Item 2. Properties
We own property, which consists primarily of land and buildings, office and warehouse facilities, central office equipment, software, outside plant and related equipment. Outside communications plant includes aerial and underground cable, conduit, poles and wires. Central office equipment includes digital switches and peripheral equipment. As such, our properties do not provide a basis for description by character or location of principal units. All of our property is considered to be in good working condition and suitable for its intended purpose.
Our gross investment in property, by category, as of December 31, 2020, was as follows:
($ in millions)
Land
$
Buildings and leasehold improvements
2,139
General support
1,643
Central office/electronic circuit equipment
8,270
Poles
1,371
Cable, fiber and wire
11,883
Conduit
1,619
Construction work in progress
Total
$
27,695

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
See Note 22 of the Notes to Consolidated Financial Statements included in Part IV of this report.
We are party to various legal proceedings (including individual actions, class and putative class actions, and governmental investigations) arising in the normal course of our business covering a wide range of matters and types of claims including, but not limited to, general contract disputes, billing disputes, rights of access, taxes and surcharges, consumer protection, advertising, sales and the provision of services, trademark and patent infringement, employment, regulatory, tort, claims of competitors and disputes with other carriers. Litigation is subject to uncertainty and the outcome of individual matters is not predictable. However, we believe that the ultimate resolution of all such matters, after considering insurance coverage or other indemnities to which we are entitled, will not have a material adverse effect on our financial position, results of operations, or cash flows.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
‎
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is currently traded on the OTC Pink Sheets Market under the symbol “FTRCQ”. We paid no cash dividends to common shareholders in each of 2020 and 2019. See “Risk Factors-Risks Related to Our Common Stock” for information on the delisting of our common stock and the risks related thereto.
As of February 26, 2021, the number of security holders of record of our common stock was 215,273. This information was obtained from our transfer agent, Computershare Inc.
Recent Sales of Unregistered Securities, Use of Proceeds from Registered Securities
There were no unregistered sales of equity securities during the fourth quarter of 2020.
ISSUER PURCHASES OF EQUITY SECURITIES
Period
Total Number of Shares Purchased
Average Price Paid per Share
October 1, 2020 to October 31, 2020
Employee Transactions (1)
-
$
-
November 1, 2020 to November 30, 2020
Employee Transactions (1)
-
$
-
December 1, 2020 to December 31, 2020
Employee Transactions (1)
-
$
-
Totals October 1, 2020 to December 31, 2020
Employee Transactions (1)
-
$
-
(1)Includes restricted shares withheld (under the terms of grants under employee stock compensation plans) to offset minimum tax withholding obligations that occur upon the vesting of restricted shares. Frontier’s stock compensation plans provide that the value of shares withheld shall be the average of the high and low price of our common stock on the date the relevant transaction occurs.
‎
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

---

ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data
The following tables present selected historical consolidated financial information of Frontier for the periods indicated. The selected historical consolidated financial information of Frontier as of and for each of the five fiscal years in the period ended December 31, 2020 has been derived from Frontier’s historical consolidated financial statements. The selected historical consolidated financial information as of December 31, 2020 and 2019 and for each of the years in the three-year period ended December 31, 2020, is derived from the audited historical consolidated financial statements of Frontier included elsewhere in this Annual Report. The selected historical consolidated financial information as of December 31, 2018, 2017 and 2016 and for each of the years ended December 31, 2017 and 2016 is derived from the audited historical consolidated financial statements of Frontier not included in this Annual Report.
Year Ended December 31, (1) (2)
($ in millions, except per share amounts)
Revenue (3)
$
7,155
$
8,107
$
8,611
$
9,128
$
8,896
Operating Income (loss)
$
$
(4,873)
$
$
(1,483)
$
Net loss (4) (5) (6) (7) (8) (9) (10)
$
(402)
$
(5,911)
$
(643)
$
(1,804)
$
(373)
Net loss attributable to Frontier
common shareholders (4) (5) (6) (7) (8) (9) (10)
$
(402)
$
(5,911)
$
(750)
$
(2,018)
$
(587)
Net loss attributable to Frontier
common shareholders per basic
and diluted share (4) (5) (6) (7) (8) (9) (10)
$
(3.85)
$
(56.80)
$
(8.37)
$
(25.99)
$
(7.61)
Cash dividends declared (and paid) per
common share
$
-
$
-
$
-
$
3.42
$
6.35
Cash dividends declared (and paid) per share
of Series A Preferred Stock share
$
-
$
-
$
5.560
(11)
$
11.125
$
11.125
As of December 31,
($ in millions)
Total assets
$
16,795
$
17,488
$
23,659
$
24,884
$
29,013
Long-term debt (12)
$
-
$
16,308
$
16,358
$
16,970
$
17,560
Total shareholders' equity (deficit)
$
(4,900)
$
(4,394)
$
1,600
$
2,274
$
4,519
(1)Operating results include activities of the properties in California, Texas and Florida (the CTF Operations) from the date of their acquisition from Verizon on April 1, 2016 (the CTF Acquisition).
(2)Operating results include activities of its operations in Washington, Oregon, Idaho, and Montana (Northwest Operations) from January 1, 2020 through the date of sale, May 1, 2020.
(3)Effective January 1, 2018, we adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers,” as modified (ASC 606) using the modified retrospective method. Under this approach, prior period results were not restated to reflect the impact of ASC 606, resulting in limited comparability between 2019, 2018, and results in years prior to adoption.
(4)Operating results include pre-tax acquisition and integration costs of $25 million ($16 million after tax) and $436 million ($283 million after tax) for 2017 and 2016, respectively.
(5)Operating results include pre-tax restructuring costs and other charges of $87 million ($64 million after tax), $168 million ($128 million after tax), $35 million ($27 million after tax), $82 million ($52 million after tax) and $91 million ($59 million after tax) for 2020, 2019, 2018, 2017, and 2016, respectively.
(6)Operating results include pre-tax pension settlement costs of $159 million ($122 million after tax), $57 million ($43 million after tax), and $41 million ($31 million after tax for 2020, 2019 and 2018, respectively.
(7)Operating results include pre-tax goodwill impairment charges of $5,725 million ($5,201 million after tax), and $641 million ($568 million after tax) for 2019 and 2018, respectively.
(8)Operating results include pre-tax loss on the disposal of Northwest Operations of $162 million ($118 million after tax), and $466 million ($466 million after tax) for 2020 and 2019, respectively.
(9)Operating results include the pre-tax impacts of gains (losses) on retirement of debt of ($72) million ($41 million after tax), ($20) million ($16 million after tax), and $32 million ($24 million after tax) for 2020, 2019 and 2018, respectively.
(10)Operating results include pre-tax Reorganization items, net, of $409 million ($361 million net of tax) for 2020.
(11)Represents dividends on the Series A Preferred Stock, from January 1, 2019 through the conversion date of June 29, 2019.
(12)The filing of the Chapter 11 Cases constituted an event of default that accelerated substantially all of our debt obligations. As such we have reclassified $5,781 million to Long term debt due within one year and unsecured debt obligations of $10,949 million to Liabilities subject to compromise on our consolidated balance sheet as of December 31, 2020.
‎
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
Overview
Frontier Communications Corporation (we, us, our, Frontier, or the Company, and following the reorganization pursuant to the Plan (as defined below), the Reorganized Company) is a leading provider of communications services in the United States. As of December 31, 2020, Frontier operates in 25 states and serves approximately 3.6 million customers, including 3.1 million broadband subscribers. We provide a broad portfolio of communications services, including data and internet services, video services, voice services, access services, and advanced hardware and network solutions for our consumer and commercial customers.
Following in-depth analysis and engagement with our stakeholders, we are pursuing a transformative restructuring process focused on restructuring the balance sheet, improving Frontier’s operations to better serve our customers, strategically repositioning Frontiers’ business to expand our fiber footprint nationally, and improving our leadership team through the acquisition of key talent.
Balance Sheet Restructuring
On April 14, 2020, Frontier and its subsidiaries (collectively, the Company Parties or the Debtors and, as they may be reorganized pursuant to the Plan, the Reorganized Company Parties or the Reorganized Debtors) entered into a Restructuring Support Agreement (the Restructuring Support Agreement) with certain of its noteholders (the Consenting Noteholders) to facilitate the financial restructuring (the Restructuring) of the existing debt of, existing equity interests in, and certain other obligations of the Company Parties. In connection therewith, on April 14, 2020 (the Petition Date), the Company Parties commenced cases under chapter 11 (the Chapter 11 Cases) of title 11 of the United States Code (the Bankruptcy Code) in the U.S. Bankruptcy Court for the Southern District of New York (the Bankruptcy Court).
On May 15, 2020, the Company Parties filed a proposed Joint Plan of Reorganization and related Disclosure Statement, each of which were amended on June 26, 2020, June 29, 2020 and June 30, 2020. On May 15, 2020, the Debtors also filed a proposed order approving the Disclosure Statement and various plan solicitation materials, including the solicitation and voting procedures, which was revised on June 29, 2020 (including modifications to some of the exhibits). On June 30, 2020, the Bankruptcy Court entered the modified order approving the adequacy of the Disclosure Statement and the solicitation and notice procedures and the forms of voting ballots and notices in connection therewith. The order established June 29, 2020 as the voting record date, July 2, 2020 as the solicitation launch date and July 31, 2020 as the voting deadline. On August 21, 2020, the Company Parties filed the Fifth Amended Joint Plan of Reorganization of Frontier Communications Corporation and Its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code (the Plan) with the Bankruptcy Court.
On August 27, 2020, the Bankruptcy Court entered the Order Confirming the Fifth Amended Joint Plan of Reorganization of Frontier Communications Corporation and its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code (the Confirmation Order), which approved and confirmed the Plan. The effective date of the Plan will occur once all conditions precedent to the Plan have been satisfied (the Effective Date).
Upon emergence from the Chapter 11 Cases, execution of the Plan will accomplish three strategic goals:
Enable Frontier to become a stronger partner for customers to keep them connected to what matters most.
Provide significant financial flexibility to accelerate transformation, invest in infrastructure, and drive operational efficiencies.
Significantly improve Frontier’s capital structure and reduce outstanding debt by more than $10 billion.
We expect to emerge from bankruptcy with a meaningfully deleveraged balance sheet and ample liquidity, through a reduction of debt and annual interest expense that will provide financial flexibility to pursue operational and strategic initiatives.
During the Chapter 11 Cases, Frontier is allowed to reorganize its finances while the business operations continue. The Company Parties continue to operate their businesses and manage their properties as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. For further developments on this topic, see “(b) Liquidity and Capital Resources-Chapter 11 Cases and Other Related Matters.”
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
2020 Results
During the year ended December 31, 2020, Frontier reported operating income of $959 million and a net loss of $402 million. This compares to an operating loss of $4,873 million and a net loss of $5,911 million reported for the year ended December 31, 2019. Our 2020 results reflect $409 million of reorganization charges, a $162 million loss related to the sale our Northwest Operations described above, and $762 million of interest expense. Our 2019 results reflected goodwill impairment charges of $5,725 million, Interest expense of $1,535 million, a $446 million loss related to the sale of our Northwest Operations, and $168 million of Restructuring costs and other charges.
Reductions in certain expenses were the primary drivers for the improvement in our Operating Loss and Net Loss year over year. Reductions in our recognized goodwill impairment charges, losses related to the sale of our Northwest Operations, Restructuring and other costs, and interest expense, more than offset increases in Reorganization items, in 2020 compared to 2019. Our lower interest expense was a result of contractual interest attributable to our unsecured noteholders of $720 million that was not recorded, as we do not expect those amounts to be paid.
Going Concern
In connection with the preparation of our consolidated financial statements, we conducted an evaluation as to whether there were conditions and events, considered in the aggregate, which raised substantial doubt as to the Company’s ability to continue as a going concern. As reflected in our consolidated financial statements, the Company had unrestricted cash and cash equivalents of $1,829 million and an accumulated deficit of $8,975 million as of December 31, 2020.
Our ability to continue as a going concern is contingent upon, among other things, our ability to, subject to the Bankruptcy Court’s approval, implement the Plan, successfully emerge from the Chapter 11 Cases and generate sufficient liquidity from the Restructuring to meet our obligations and operating needs. As a result of risks and uncertainties related to (i) the Company’s ability to successfully consummate the Plan and emerge from the Chapter 11 Cases, and (ii) the effects of disruption from the Chapter 11 Cases making it more difficult to maintain business, financing and operational relationships, together with the Company’s recurring losses from operations and accumulated deficit, substantial doubt exists regarding our ability to continue as a going concern.
See Note 1 of the Notes to Consolidated Financial Statements for further discussion of the Company’s ability to continue as a going concern. See “-(b) Liquidity and Capital Resources” and Note 3 of the Notes to Consolidated Financial Statements for more information on the Restructuring and our limited liquidity.
Recent Events
Divestiture of Northwest Operations
On May 1, 2020, we completed the sale of our Northwest Operations for gross proceeds of $1,352 million, subject to certain closing adjustments. Net of funding certain pension and other retiree medical liabilities, funding certain escrows and other closing adjustments, we received $1,131 million in proceeds.
DIP Financing
On August 28, 2020, the Company Parties filed a motion (the DIP Financing Motion) with the Bankruptcy Court to approve the indentures, credit guarantee and security documents governing the obligations under senior secured superpriority first lien and/or second lien notes to be issued by the Company or an affiliate thereof, a debtor-in-possession (DIP) revolving facility and the exit revolving facility (the Exit Revolving Facility) it would convert into upon satisfaction of certain conditions, including the effectiveness of the Plan, a DIP term loan facility and the exit term loan facility it would convert into upon satisfaction of certain conditions, including the effectiveness of the Plan (the Exit Term Loan Facility) and, if applicable, the reinstated prepetition $1,740 million senior secured term loan B facility (the Term Loan B) due June 15, 2024 (collectively, the DIP Financing). On September 17, 2020, the Bankruptcy Court entered the final order approving the DIP Financing Motion.
Debt Refinancing
On September 17, 2020, we repaid the $749 million of outstanding principal under the Company’s $850 million secured revolving credit facility maturing on February 27, 2024 (the Revolver), plus accrued interest. The repayment in full of all revolving loans outstanding under the JPM Credit Agreement was a condition precedent to the entry into the DIP Revolving Facility (defined below), and the Revolver was terminated on October 8, 2020 upon entry into the DIP revolving Facility.
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
In connection with the DIP Financing, on October 8, 2020, we issued $1,150 million aggregate principal amount of 5.875% First Lien Secured Notes due October 15, 2027 (the First Lien Notes due October 2027), and entered into a $625 million DIP revolving facility (the DIP Revolving Facility) and a $500 million DIP term loan facility (the Initial DIP Term Loan Facility). We used the proceeds from the offering of the First Lien Notes due October 2027, together with the proceeds of the Initial DIP Term Loan Facility and cash on hand, to (i) repay in full our prepetition $1,650 million aggregate principal amount of 8.000% First Lien Secured Notes due April 1, 2027 (the Original First Lien Notes) and (ii) pay related interest, fees and expenses.
In connection with the DIP Financing, on November 25, 2020, we also issued $1,550 million aggregate principal amount of 5.000% First Lien Secured Notes due May 1, 2028 (the First Lien Notes due May 2028 and, together with the First Lien Notes due October 2027, the New First Lien Notes) and $1,000 million aggregate principal amount of 6.750% Second Lien Secured Notes due May 1, 2029 (the New Second Lien Notes and, together with the New First Lien Notes, the Secured Notes), and borrowed an incremental $750 million pursuant to the Incremental DIP Term Loan Facility. We used the proceeds from these issuances and the incremental term loan borrowing, together with cash on hand to (i) repay all outstanding borrowings under the Term Loan B, (ii) repay in full the $1,600 million aggregate principal amount of prepetition 8.500% Second Lien Secured Notes due April 1, 2026 (the Original Second Lien Notes), and (iii) pay related interest, fees and expenses incurred in connection therewith.
RDOF Auction Results
The FCC held the RDOF Phase I auction from October 29, 2020 through November 25, 2020 and announced the results on December 7, 2020. Frontier won approximately $371 million over ten years to build gigabit-capable broadband over a fiber-to-the-premises network to approximately 127,000 locations across eight states (California, Connecticut, Florida, Illinois, New York, Pennsylvania, Texas, and West Virginia). Frontier submitted its Long Form application to the FCC on January 29, 2021 and, assuming the long-form application is granted by the FCC, anticipates that it will begin receiving funding on January 1, 2022, in which case, Frontier will be required to complete the buildout to these locations by December 31, 2027, with interim target milestones over this period.
Impact of COVID-19 Pandemic
While overall the operational and financial impacts to our business of the COVID-19 pandemic for the year ended December 31, 2020 were not significant, we continue to closely monitor the ongoing impact to our employees, our customers, our business and our results of operations. We have experienced a slowdown in service activations and an increase in deactivations for our SMB customers; to date, these negative impacts have been partially offset by higher net residential activations and lower churn. We also continue to closely track our customers’ payment activity as well as external factors, including the expiration of federal stimulus legislation which could materially impact payment trends. With more people working from home, we have experienced higher demands on our network and higher net activations for our residential broadband service offering. This sustained increase in network demand could lead to reduced network availability and potential outages, which may impair our ability to meet customer service level commitments, lead to higher costs, higher customer churn and potential increased regulatory actions. These potential changes, among others, could have a material financial impact to Frontier. See “Risk Factors - Risks Related to our Business - The effects of COVID-19, including its impact on market conditions, may adversely impact our business and hinder our exit financing and our ability to emerge from Chapter 11” and Note 1 of the Notes to Consolidated Financial Statements for further discussion of the COVID-19 Pandemic.
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
Presentation of Results of Operations
The sections below include tables that present customer counts, average monthly consumer revenue per customer (ARPC) and consumer customer churn. We define churn as the number of consumer customer deactivations during the month divided by the number of consumer customers at the beginning of the month and utilize the average of each monthly churn in the period.
Management believes that consumer customer counts and average monthly consumer revenue per customer are important factors in evaluating our consumer customer trends. Among the key services we provide to consumer customers are voice service, data service and video service. We continue to explore the potential to provide additional services to our customer base, with the objective of meeting our customers’ communications needs.
On November 19, 2020, the SEC issued a final rule that modernizes and simplifies Management’s Discussion and Analysis (MD&A) and certain financial disclosure requirements in SEC Regulation S-K. The changes include the elimination of Regulation S-K, Item 301, “Selected Financial Data”, Simplification of Regulation S-K, Item 302, “Supplementary Financial Information”, Amendments to certain aspects of Regulation S-K, Item 303, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The rule is effective February 10, 2021, but compliance is not required until the annual report for the fiscal year ending on or after August 9, 2021, with early adoption permitted. We have not adopted these changes in our MD&A disclosures as of December 31, 2020.
The following section should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K.
‎
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
(a) Results of Operations
2020 compared to 2019
Unless otherwise indicated, the discussion of the customer metrics and components of operating income that follows relates only to the Remaining Properties.
Customer Trends
As of or for the year ended
December 31, 2020
December 31, 2019
% Change
Consolidated
Northwest
Remaining
Consolidated
Northwest
Remaining
Remaining
Frontier
Ops
Properties
Frontier
Ops
Properties
Properties
Customers (in thousands)
3,571
N/A
N/A
4,118
N/A
N/A
N/A
Consumer customer metrics
Customers (in thousands)
3,264
-
3,264
3,747
3,412
(4)
%
Net customer additions (losses)
(483)
(335)
(148)
(313)
(23)
(290)
(49)
%
Average monthly consumer
revenue per customer
$
86.65
$
76.74
$
86.97
$
88.70
$
77.23
$
89.82
(3)
%
Customer monthly churn
1.73%
1.51%
1.74%
2.07%
1.74%
2.11%
(18)
%
Commercial customer metrics
Customers (in thousands)
N/A
N/A
N/A
N/A
N/A
Broadband subscriber metrics
(in thousands)
Broadband subscribers
3,069
-
3,069
3,513
3,211
(4)
%
Net subscriber additions (losses)
(444)
(302)
(142)
(222)
(16)
(206)
(31)
%
Video (excl. Dish) subscriber metrics
(in thousands)
Video subscribers (in thousands)
-
(23)
%
Net subscriber additions (losses)
(175)
(29)
(146)
(178)
(9)
(169)
(14)
%
Dish subscriber metrics
(in thousands)
Dish subscribers (in thousands)
-
(14)
%
Net subscriber additions (losses)
(39)
(17)
(22)
(32)
(3)
(29)
(24)
%
Employees
16,200
-
16,200
18,317
`
17,367
(7)
%
We provide service and product options in our consumer and commercial offerings in each of our markets.
Consumer Customers
For the year ended December 31, 2020, Frontier lost 148,000, or 4% of our consumer customers, compared to 290,000, or 8% in 2019. As of December 31, 2020, 50% of our consumer broadband customers also subscribed to at least one other service offering. We lost 2% of our consumer broadband subscribers, with losses of copper broadband subscribers (primarily to competitors offering higher speeds), partially offset by gains in fiber broadband subscribers (six consecutive quarters of fiber broadbands subscriber gains). We experienced a 21% decline in our video subscribers primarily as a result of customers increasingly opting for other video services including Over the Top, in lieu of traditional video services. We also shifted our focus away from the acquisition of higher cost video customers. During 2020, we lost voice subscribers as a result of customers choosing alternative voice products and reduced attachment to broadband services.
Our average monthly consumer customer churn was 1.74% for the year ended December 31, 2020 compared to 2.11% for 2019. The consolidated average monthly consumer revenue per customer (consumer ARPC) decreased by $2.85 or 3% to $86.97 during 2020 compared to the prior year. The overall decrease in consumer ARPC is primarily a result of a decreased percentage of customers taking linear video services along with decreased consumer voice services, slightly offset by increased data equipment revenues.
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
Financial Results
For the year ended
December 31, 2020
December 31, 2019
% Change
Consolidated
Northwest
Remaining
Consolidated
Northwest
Remaining
Consolidated
Remaining
Frontier
Ops (1)
Properties
Frontier
Ops (2)
Properties
Frontier
Properties
Data and Internet services
$
3,478
$
$
3,376
$
3,756
$
$
3,446
-7%
-2%
Voice services
2,085
2,028
2,500
2,315
-17%
-12%
Video services
1,005
-21%
-19%
Other
-10%
-5%
Revenue from contracts
with customers
6,781
6,597
7,738
7,158
-12%
-8%
Subsidy and other revenue
1%
6%
Revenue
7,155
6,963
8,107
7,502
-12%
-7%
Operating expenses (3):
Network access
expenses
1,247
1,196
-22%
-20%
Network related
expenses
1,726
1,700
1,810
1,732
-5%
-2%
Selling, general and
administrative
expenses
1,648
1,622
1,804
1,731
-9%
-6%
Depreciation and
amortization
1,598
-
1,598
1,780
1,720
-10%
-7%
Goodwill impairment
-
-
-
5,725
-
5,725
-100%
-100%
Loss on disposal of
Northwest Operations
-
-
-64%
-64%
Restructuring costs and
other charges
-
-48%
-48%
Total operating expenses
$
6,196
$
$
6,130
$
12,980
$
$
12,716
-52%
-52%
Operating income (loss)
(4,873)
(5,214)
-120%
-116%
Consumer
3,586
3,484
4,153
3,831
-14%
-9%
Commercial
3,195
3,113
3,585
3,327
-11%
-6%
Revenue from contracts
with customers
6,781
6,597
7,738
7,158
-12%
-8%
Subsidy and other revenue
1%
6%
Total revenue
$
7,155
$
$
6,963
$
8,107
$
$
7,502
-12%
-7%
(1)Amounts represent the financial results of the Northwest Operations for the four months ended April 30, 2020.
(2)Amounts represent the financial results of the Northwest Operations for the year ended December 31, 2019.
(3)Operating expenses for the Northwest Operations do not include allocated expenses which are included in operating expenses for our Remaining Properties.
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
The following charts present key customer metrics, disaggregation of revenue, and the results of operations of the consolidated company excluding the Northwest Operations (Northwest Ops) through the date of sale. The results of operations for the Northwest Operations are shown separate from the total for our operations located in the remaining 25 states (Remaining Properties).
REVENUE
For the year ended December 31,
$ Increase
% Increase
($ in millions)
(Decrease)
(Decrease)
Data and Internet services
$
3,376
$
3,446
$
(70)
(2)
%
Voice services
2,028
2,315
(287)
(12)
%
Video services
(183)
(19)
%
Other
(21)
(5)
%
Revenue from contracts with customers (1)
6,597
7,158
(561)
(8)
%
Subsidy revenue
%
Total revenue
$
6,963
$
7,502
$
(539)
(7)
%
For the year ended December 31,
$ Increase
% Increase
($ in millions)
(Decrease)
(Decrease)
Consumer
$
3,484
$
3,831
$
(347)
(9)
%
Commercial
3,113
3,327
(214)
(6)
%
Revenue from contracts with customers (1)
6,597
7,158
(561)
(8)
%
Subsidy revenue
%
Total revenue
$
6,963
$
7,502
$
(539)
(7)
%
(1)Includes $67 million and $65 million of lease revenue for the years ended December 31, 2020 and 2019, respectively.
We generate revenues primarily through either a monthly recurring fee or a fee based on usage, and revenue recognition is not dependent upon significant judgments by management, with the exception of a determination of the provision for uncollectible amounts.
The 9% decrease in consumer customer revenue was primarily due to the 4% decline in consumer customers combined with lower consumer ARPC (as described above) resulting in reduced revenues for consumer voice services, video services, and to a lesser extent, data and internet services revenue.
The 6% decrease in commercial customer revenue was primarily driven by a 2% reduction in wholesale revenues which comprise approximately 53% of our commercial revenues. The decline in wholesale revenues is primarily a result of rate declines for our network access services. Our SME revenues that comprise the remaining commercial revenue decreased 10% primarily as a result of a 17% decline in small business customers in 2020.
The increases in subsidy and other revenue, were driven primarily by transition services provided in connection with the divestiture of the Northwest Operations for the six month period following the May 1, 2020 sale date. This increase was partially offset by scheduled reductions in subsidy funding levels, primarily funding related to CAF Phase II subsidies.
We categorize our products, services, and other revenues into the following five categories:
Data and Internet services
Data and internet services revenue for the year ended December 31, 2020 decreased 2% as compared with 2019. Broadband and data services revenues comprise 61% or $2,068 million of total Data and internet services revenue, while network access revenues comprise 39% or $1,308 million. Network access revenues include our data transmission services to high volume commercial customers and other carriers with dedicated high capacity circuits including services to wireless providers (wireless backhaul).
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
Broadband and data services revenue decreased by $36 million, or 2%, primarily driven by a loss of SME customers combined with decreased other data services revenue. Network access revenues declined $34 million, or 3%, due to the migration of our carrier customers from legacy technology circuits to lower priced ethernet circuits.
We expect wireless data usage to continue to increase, which may drive the need for additional wireless backhaul capacity. Despite the need for additional capacity, in the near term, we anticipate that our overall wireless backhaul revenues (which comprise approximately 2.5% of consolidated total revenues) will continue to decline in 2021, as our carrier customers migrate to ethernet solutions at lower price points or migrate to our competitors.
Voice services
Voice services include traditional local and long-distance wireline services, data-based Voice over Internet Protocol (VoIP) services, as well as voice messaging services offered to our consumer and commercial customers. Voice services also include the long-distance voice origination and termination services that we provide to our commercial customers and other carriers.
The decrease of 12% in voice services revenue was primarily due to continued declines in both consumer and commercial customers, combined with a reduction in voice services being bundled with broadband services.
Video services
Video services include revenues generated from services provided directly to consumer customers as linear terrestrial television services, and through Dish satellite TV services.
The decrease of 19% in video services revenue was primarily due to 23% net loss in linear video customers, partially offset by price increases.
Other
Other customer revenue includes switched access revenue and sales of CPE to our business customers as well as directory services. Switched access revenue includes revenues derived from allowing other carriers to use our network to originate and/or terminate their local and long-distance voice traffic (switched access). These services are primarily billed on a minutes-of-use basis applying tariffed rates filed with the FCC or state agencies.
The decrease of $21 million, or 5%, in other revenue was primarily driven by a decrease in switched access revenue due to the reduced rates mandated by the Universal Service Fund/Intercarrier Compensation Report and Order as well as a 7% reduction in minutes of use. Since we are a consumer of switched access services on other carriers, we also benefited from the lower mandated rates within network access expense. Lower CPE sales, lower service activation associated fees, and less directory revenue also contributed to the decline in other revenue. These declines were partially offset by lower provisions for uncollectibles and higher late payment fees.
Subsidy and other revenue
Subsidy and other revenue includes revenue generated from cost subsidies from state and federal authorities, including the Connect America Fund Phase II as well as revenue generated from the transition services provided in connection with our divestiture of the Northwest Operations.
The increases in subsidy and other revenue, were driven primarily by $30 million in transition services provided to the purchaser of the Northwest Operations for the six month period following the May 1, 2020 sale date. This increase was partially offset by scheduled reductions in subsidy funding levels, primarily funding related to CAF Phase II subsidies.
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
2020 OPERATING EXPENSES COMPARED TO 2019
NETWORK ACCESS EXPENSE
For the year ended December 31,
$ Increase
% Increase
($ in millions)
(Decrease)
(Decrease)
Network access expenses
$
$
1,196
$
(235)
(20)
%
Network access expenses include access charges and other third-party costs directly attributable to connecting customer locations to our network, and video content costs. Such access charges and other third-party costs exclude network related expenses, depreciation and amortization, and employee related expenses.
The decrease in network access expenses was primarily due to lower video content costs as a result of a decline in video customers and non-renewal of certain content agreements as well as decreased CPE costs.
NETWORK RELATED EXPENSES
For the year ended December 31,
$ Increase
% Increase
($ in millions)
(Decrease)
(Decrease)
Network related expenses
$
1,700
$
1,732
$
(32)
(2)
%
Network related expenses include expenses associated with the delivery of services to customers and the operation and maintenance of our network, such as facility rent, utilities, maintenance and other costs, as well as salaries, wages and related benefits associated with personnel who are responsible for the delivery of services, and the operation and maintenance of our network.
The decrease in network related expenses was primarily due to decreased compensation costs related to lower employee headcount, slightly offset by the abandonment of certain in-progress capital projects during 2020.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
For the year ended December 31,
$ Increase
% Increase
($ in millions)
(Decrease)
(Decrease)
Selling, general and
administrative expenses
$
1,622
$
1,731
$
(109)
(6)
%
Selling, general and administrative expenses (SG&A expenses) include the salaries, wages and related benefits and costs of corporate and sales personnel, travel, insurance, non-network related rent, advertising and other administrative expenses.
The decrease in SG&A expenses was primarily driven by decreased compensation costs related to lower employee headcount and reduced property taxes.
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
Pension and OPEB costs
Frontier allocates pension/OPEB expense, which includes only service costs, to network related expenses and SG&A expenses. Total consolidated pension and OPEB expense, excluding pension settlement costs and pension/OPEB special termination benefit enhancements, for the years ended December 31, 2020 and 2019 were as follows:
For the year ended December 31,
($ in millions)
Total pension/OPEB
expenses
$
$
Less: costs capitalized into
capital expenditures
(25)
(24)
Net pension/OPEB expense
$
$
DEPRECIATION AND AMORTIZATION
For the year ended December 31,
$ Increase
% Increase
($ in millions)
(Decrease)
(Decrease)
Depreciation expense
$
1,255
$
1,287
$
(32)
(2)
%
Amortization expense
(90)
(21)
%
$
1,598
$
1,720
$
(122)
(7)
%
Depreciation and amortization expense for the year ended December 31, 2020 decreased as compared to 2019. The decrease in depreciation expense was primarily driven by lower asset bases (refer to Note 6). The decrease in amortization expense was primarily driven by the accelerated method of amortization related to customer bases acquired in 2010, 2014, and 2016.
GOODWILL IMPAIRMENT
All goodwill was either fully impaired as of December 31, 2019 or disposed of in connection with the sale of our Northwest Operations on May 1, 2020. As such, there were no goodwill impairment charges for the year ended December 31, 2020.
We recorded goodwill impairments totaling $5,725 million for the year ended December 31, 2019. The impairment in the second and third quarters of 2019 reflected a lower enterprise valuation driven by lower profitability, as well as a reduction in the applicable market multiple from 5.3x EBITDA at December 31, 2018 to the 4.4x EBITDA utilized during our quantitative assessments in 2019. This reflected, among other things, pressures on our business resulting in the continued deterioration in revenue, challenges in achieving improvements in revenue and customer trends under our transformation initiative, the long-term sustainability of our capital structure, and the lower outlook of our industry as a whole.
LOSS ON DISPOSAL OF NORTHWEST OPERATIONS
As a result of our evaluation of recoverability of the carrying value of the assets and liabilities held for sale relative to the agreed upon sales price, adjusted for costs to sell, we recorded a loss on disposal of our Northwest Operations of $162 million and $446 million during the years ended December 31, 2020 and 2019, respectively.
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
RESTRUCTURING COSTS AND OTHER CHARGES
For the year ended December 31,
$ Increase
% Increase
($ in millions)
(Decrease)
(Decrease)
Restructuring costs and
other charges
$
$
$
(79)
(48)
%
Restructuring costs and other charges consist of expenses related to changes in the composition of our business, including workforce reductions, transformation initiatives, other restructuring expenses, and corresponding changes to retirement plans resulting from a voluntary severance program.
In 2018, Frontier launched a strategic transformation program. This program was reduced in scope and largely completed during the first half of 2019.
For the year ended December 31, 2020, the $87 million in restructuring costs and other charges is comprised of $7 million related to severance expense, $8 million in costs related to transformation initiatives, and $72 million in consulting and advisory costs related to our balance sheet restructuring activities.
Effective with the filing of the Chapter 11 Cases, Frontier recorded all consulting and advisory costs related to our balance sheet restructuring activities outside of operating income in “Reorganization Items, net”.
OTHER NON-OPERATING INCOME AND EXPENSE
For the year ended December 31,
$ Increase
% Increase
($ in millions)
(Decrease)
(Decrease)
Investment and other loss, net
$
(43)
$
(37)
$
(6)
%
Pension settlement costs
$
(159)
$
(57)
$
(102)
%
Loss on extinguishment of debt
$
(72)
$
(20)
$
(52)
NM
Reorganization Items, net
$
(409)
$
-
$
(409)
NM
Interest expense
$
(762)
$
(1,535)
$
(50)
%
Income tax benefit
$
(84)
$
(611)
$
(527)
NM
NM - Not meaningful
Investment and other loss, net
Investment and other loss, net primarily relates to non-operating pension and OPEB expenses of approximately $43 million 2020 and $42 million in 2019.
Pension settlement costs
Lump sum pension settlement payments to terminated or retired individuals amounted to $465 million, which exceeded the settlement threshold of $211 million, and as a result, Frontier recognized non-cash settlement charges of $159 million and $57 million during 2020 and 2019, respectively. The non-cash charge accelerated the recognition of a portion of the previously unrecognized actuarial losses in the pension plan.
Loss on early extinguishment of debt
In 2020, Frontier recorded a loss on the early extinguishment of debt primarily driven by the write-off of unamortized original issuance costs that were retired along with the Term Loan B, the Original First Lien Notes, and the Original Second Lien Notes. In 2019, Frontier recorded a loss on the early extinguishment of debt primarily driven by the write-off of unamortized original issuance costs that were retired along with the Term Loan A and the 2016 CoBank Credit Agreement.
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
Reorganization items, net
The Company has incurred and will continue to incur significant costs associated with the reorganization, primarily the write-off of certain debt issuance costs and net discounts, financing costs, and legal and professional fees. Effective with the Petition Date, these costs which are expensed as incurred, are expected to significantly affect our consolidated results of operations. During 2020, Frontier incurred $409 million in reorganization costs associated with the restructuring of our balance sheet, including $137 million of professional fees, $93 million related to the write off of previously deferred financing costs for debt obligations that are subject to compromise, $121 million in debtor-in-possession financing costs related to our DIP Refinancing, and $58 million related to the Secured Creditor Settlement (as defined herein) entered into with certain of our secured lenders in August 2020.
Interest expense
Interest expense decreased $773 million, or 50%, as compared to 2019. Beginning on the Petition Date, we ceased recording interest expense for our unsecured debt. The contractual interest is $720 million higher than what we have recorded for our debt obligations for the year ended December 31, 2020.
Income tax benefit
For the year ended December 31, 2020, Frontier recorded an income tax benefit of $84 million on the pretax loss of $486 million. The effective tax rates on our pretax loss for the years ended December 31, 2020 and 2019 were 17.2% and 9.4%, respectively.
Basic and diluted net loss attributable to Frontier common shareholders
Net loss attributable to Frontier common shareholders for 2020 was $402 million, or $3.85 per share, as compared to a net loss of $5,911 million, or $56.80 per share, in 2019. For 2020, our net loss was driven by $762 million of interest expense, $409 million of reorganization charges, pension settlement costs of $159 million, and a $162 million loss related to the sale our Northwest Operations described above. For 2019, our net loss was driven by goodwill impairment charges of $5,725 million, interest expense of $1,535 million, a $446 million loss related to the sale of our Northwest Operations, and $168 million of restructuring costs and other charges.
The comparison of our operating results and financial condition for the fiscal years ended 2019 and 2018 can be found in our Form 10-K for the fiscal year ended December 31, 2019 under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
‎
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
(b) Liquidity and Capital Resources
Historically, our principal liquidity requirements have been to fund the costs of operations and expand our business, pay principal and interest obligations on our significant indebtedness, for capital expenditures to replace, upgrade, expand and improve our networks and infrastructure, and to integrate acquired businesses and to separate assets and systems for sale.
Our ability to continue as a going concern is dependent upon our ability to, subject to the Bankruptcy Court’s approval, implement the Plan, successfully emerge from the Chapter 11 Cases and generate sufficient liquidity from the Restructuring to meet our obligations and operating needs. These factors, together with the Company’s recurring losses from operations and accumulated deficit, create substantial doubt about the Company’s ability to continue as a going concern.
Refer to “-Chapter 11 Cases and Other Related Matters” for more information on the Chapter 11 Cases and their effect on our liquidity.
Analysis of Cash Flows
As of December 31, 2020, we had unrestricted cash and cash equivalents aggregating $1,829 million. In 2020, we used cash flow from operations, cash on hand, proceeds from the sale of the Northwest Operations, and cash from prior year borrowings to principally fund all of our cash investing and financing activities, which were primarily capital expenditures and the repayment of the Revolver.
On May 1, 2020, we completed the sale of the Northwest Operations for gross proceeds of $1,352 million, subject to certain closing adjustments. Net of funding certain pension and other retiree medical liabilities, funding certain escrows and other closing adjustments, we received $1,131 million in proceeds. Revenues for the Northwest Operations represented approximately 7% of consolidated revenue the four month period ended April 30, 2020 and the twelve month period ended December 31, 2019.
As of December 31, 2020, we had a working capital deficit of $4,486 million compared to surplus of $233 million at December 31, 2019. The primary driver for the working capital deficit at December 31, 2020 was the acceleration of the maturities of our long-term debt that resulted from our filing of the Chapter 11 Cases.
Cash Flows provided from Operating Activities
Cash flows provided by operating activities increased $481 million to $1,989 million in 2020 as compared to 2019. The overall increase in operating cash flows was the result of favorable changes in working capital, primarily attributable to withholding payment of pre-petition trade accounts payable subsequent to the filing of the Chapter 11 Cases as well as a reduction in cash payments for interest as compared to the comparative period in 2019.
We paid $8 million and $4 million in net cash taxes during the years ended December 31, 2020 and 2019, respectively.
Cash Flows used by Investing Activities
Cash flows used by investing activities decreased $1,115 million to $19 million for the year ended December 31, 2020 as compared to the corresponding period in 2019. The primary driver of this decrease was the impact of cash proceeds of $1,131 million received for the sale of the Northwest Operations.
Capital Expenditures
In 2020 and 2019, our capital expenditures were, $1,181 million and $1,226 million, respectively. This reduction in capital expenditures was primarily driven by delays in payments for certain prepetition capital expenditures following the filing of the Chapter 11 Cases.
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
Cash Flows provided from (used by) Financing Activities
Cash flows provided from (used by) financing activities increased $925 million to $893 million for the year ended December 31, 2020 as compared to 2019. The primary driver of this increase was the repayment of the Revolver.
DIP Financing Costs
In connection with the filing of the Chapter 11 Cases, Frontier recorded approximately $121 million in financing costs related to the issuance of the DIP Financing for the year ended December 31, 2020.
Debt Issuances and Debt Reductions
On September 17, 2020, Frontier repaid the $749 million of outstanding principal under the Revolver, plus accrued interest. The repayment in full of all revolving loans outstanding under the JPM Credit Agreement was a condition precedent to the entry into the DIP Revolving Facility.
On October 8, 2020, the Company issued $1,150 million aggregate principal amount of First Lien Notes due October 2027 and entered into a $625 million DIP Revolving Facility and the $500 million Initial DIP Term Loan Facility. The Company used the proceeds from the offering, together with the proceeds of the Initial DIP Term Loan Facility and cash on hand, to (i) repay in full the Company’s $1,650 million aggregate principal amount of Original First Lien Notes and (ii) pay related interest, fees and expenses.
On November 25, 2020, the Company issued $1,550 million aggregate principal amount of First Lien Notes due May 2028 and $1,000 million aggregate principal amount of New Second Lien Notes and borrowed an incremental $750 million pursuant to the Incremental DIP Term Loan Facility. The Company used the proceeds from the issuances, together with the incremental term loan borrowing and cash on hand to (i) repay all outstanding borrowings under our Term Loan B, (ii) repay in full the $1,600 million aggregate principal amount of the Original Second Lien Notes, and (iii) pay related interest, fees and expenses incurred in connection therewith. See “Capital Resources” and Note 9 of the consolidated financial statements for additional details related to the DIP Revolving Facility and the DIP Term Loan Facility.
On March 15, 2019, we completed a private offering of $1,650 million aggregate principal amount of the Original First Lien Notes. The proceeds from the offering of Original First Lien Notes, together with cash on hand, was used to (i) repay in full the outstanding borrowings under the senior secured Term Loan A facility under the JPM Credit Agreement (as defined below), (ii) repay in full the outstanding borrowings under the 2016 CoBank Credit Agreement (as defined below), and (iii) pay related interest, fees and expenses. As discussed above, the Original First Lien Notes were repaid in full in the fourth quarter of 2020.
During the year ended December 31, 2019, Frontier used cash on hand for the scheduled retirement of $363 million principal amount of senior indebtedness. In addition, Frontier used the proceeds from the offering of Original First Lien Notes, together with cash on hand, to (i) repay in full the outstanding borrowings under the senior secured term loan A facility under the JPM Credit Agreement, which otherwise would have matured in March 2021, (ii) repay in full the outstanding borrowings under the 2016 CoBank Credit Agreement, which otherwise would have matured in October 2021, and (iii) pay related interest, fees and expenses.
See “-Chapter 11 Cases and Other Related Matters-DIP Financing” for more information about the DIP Financing.
The comparison of our cash flows from operations, cash flows from investing, and cash flows from financing for the fiscal years ended December 31, 2019 and 2018 can be found in our Form 10-K for the fiscal year ended December 31, 2019 under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
Capital Resources
Historically, a substantial portion of our liquidity needs arise from debt service on our outstanding indebtedness and from funding the costs of operations, working capital and capital expenditures. Our primary sources of cash are cash flows from operations, cash on hand and proceeds from debt borrowings, including issuances of long-term debt and our $625 million undrawn borrowing capacity under the DIP Revolving Facility (as reduced by $90 million of Letters of Credit.) We have assessed our current and expected funding requirements and our current and expected sources of liquidity, and have determined, based on our forecasted financial results and financial condition as of December 31, 2020, that our operating cash flows and existing cash balances, will be adequate to finance our working capital requirements, fund capital expenditures, make required debt interest and principal payments due under the Plan, pay taxes and make other payments due under the Plan. A number of factors, including but not limited to, losses of customers, pricing pressure from increased competition, lower subsidy and switched access revenues, and the impact of economic conditions may negatively affect our cash generated from operations. We completed the sale of the Northwest Operations on May 1, 2020. Net of pension funding, certain escrows, and other closing adjustments, we received $1,131 million in proceeds.
However, our ability to continue as a going concern is dependent upon our ability to successfully emerge from the Chapter 11 Cases and generate sufficient liquidity from the Restructuring to meet our obligations and operating needs. Refer to “-Chapter 11 Cases and Other Related Matters” for more information on the terms of the Restructuring Support Agreement, the Chapter 11 Cases and the effects of both on our liquidity.
Term Loan and Revolving Credit Facilities and New Secured Notes
DIP Revolving Facility
On October 8, 2020, Frontier entered into the DIP Revolving Facility, pursuant to the senior secured superpriority debtor-in-possession credit agreement, dated as of October 8, 2020, by and among Frontier, as the borrower and a debtor and debtor-in-possession under Chapter 11 of the Bankruptcy Code, Goldman Sachs Bank USA, as administrative agent, JP Morgan Chase Bank, N.A., as collateral agent and each lender and issuing bank from time to time party thereto.
The DIP Revolving Facility has a maturity of the earlier of (x) the date that is twelve months after the closing date of the DIP Revolving Facility and (y) the date of the substantial consummation of the Plan; provided that to the extent such substantial consummation has not occurred on or prior to the date referred to in the foregoing clause (x), primarily because any condition precedent set forth therein with respect to the procurement of regulatory approvals has not been satisfied (and other than any other conditions that by their nature can only be satisfied on the consummation date), the maturity date shall be extended by an additional six months.
At our election, the determination of interest rates for the DIP Revolving Facility is based on margins over the alternate base rate or over LIBOR. The interest rate with respect to any LIBOR loan is 3.250% (or 2.250% for alternate base rate loans).
Subject to customary exceptions and thresholds, the security package under the DIP Revolving Facility includes pledges of the equity interests in certain of our subsidiaries, which as of the issue date is limited to certain specified pledged entities, substantially all personal property of Frontier Video and substantially all of the unencumbered assets and properties of Frontier and Frontier Iowa, which such security interest in the unencumbered assets and properties was granted solely pursuant to the DIP financing order issued by the Bankruptcy Court, which same assets also secure the New First Lien Notes. The DIP Revolving Facility is guaranteed by the same subsidiaries that guarantee the New First Lien Notes. After giving effect to $90 million of letters of credit formerly outstanding under the Revolver that were rolled into, replaced or otherwise accommodated for under the DIP Revolving Facility, the Company has $535 million of available borrowing capacity under the DIP Revolving Facility.
Upon the conversion date, subject to certain conditions, the DIP Revolving Facility shall convert into the Exit Revolving Facility with an aggregate principal amount of $625 million. The Exit Revolving Facility will be available on a revolving basis during the period commencing on the conversion date and ending on the date that is the earlier of (x) 4 years after the conversion date and (y) 91 days prior to the earliest maturity date of permitted pari passu refinancing debt, permitted junior refinancing debt, the term loans outstanding under the prepetition credit agreement after giving effect to the consummation of the Plan (or any indebtedness that replaces or refinances such term loans) and any long term exit facilities so long as, in each case, the outstanding principal amount of any such indebtedness is in excess of an amount set forth in the definitive documentation with respect to the Exit Revolving Facility. The determination of
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interest rates for the Exit Revolving Facility is based on margins over the alternate base rate or over LIBOR, at our election. The interest rate with respect to any LIBOR loan is 3.500% (or 2.500% for alternate base rate loans).
DIP Term Loan Facility
On October 8, 2020, Frontier entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and collateral agent and each lender from time to time party thereto (the DIP to Exit Term Credit Agreement). which provides for a senior secured superpriority DIP term loan facility in the aggregate principal amount of $500 million (the Initial DIP Term Loan Facility). On November 25, 2020, Frontier entered into an incremental amendment to the DIP to Exit Term Credit Agreement (the Incremental DIP Term Loan Amendment), which provides for an additional senior secured superpriority DIP term loan facility in the aggregate principal amount of $750 million (the Incremental DIP Term Loan Facility and, together with the Initial DIP Term Loan Facility, the DIP Term Loan Facility).
The DIP Term Loan Facility has a maturity of the earlier of (x) the date that is twelve months after the closing date of the DIP Term Loan Facility and (y) the date of the substantial consummation of the Plan; provided that to the extent such substantial consummation has not occurred on or prior to the date referred to in the foregoing clause (x), primarily because any condition precedent set forth therein with respect to the procurement of regulatory approvals has not been satisfied (and other than any other conditions that by their nature can only be satisfied on the consummation date), the maturity date shall be extended by an additional six months; provided that if certain conditions are met and the conversion date occurs, the maturity date shall be the seventh anniversary of the closing date.
At our election, the determination of interest rates for the DIP Term Loan Facility are based on margins over the alternate base rate or over LIBOR. The interest rate with respect to any LIBOR loan is 4.750% or 3.750% for alternate base rate loans, with a 1.00% LIBOR floor.
Subject to certain exceptions and thresholds, the security package under the DIP Term Loan Facility includes pledges of the equity interests in certain of our subsidiaries, which as of the issue date is limited to certain specified pledged entities, substantially all personal property of Frontier Video Services Inc., a Delaware corporation (Frontier Video), and, solely prior to the conversion date, substantially all of the unencumbered assets and properties (the DIP Collateral) of Frontier and Frontier Communications of Iowa, LLC, an Iowa limited liability company (Frontier Iowa), which such security interest in the DIP Collateral was granted solely pursuant to the DIP financing order issued by the Bankruptcy Court, which same assets also secure the New First Lien Notes. The DIP Term Loan Facility is guaranteed by the same subsidiaries that guarantee the New First Lien Notes. Upon the conversion date, the security package will no longer include the DIP Collateral.
Upon the conversion date, subject to certain conditions, the DIP Term Loan Facility shall convert into the Exit Term Loan Facility with an aggregate principal amount of $1,250 million.
Terminated JP Morgan Credit Facilities
Frontier had a prepetition term loan facility and revolving credit facility with JP Morgan Chase Bank, N.A., as administrative agent, and the lenders party thereto. As noted above, as of December 31, 2020 all outstanding amounts drawn under these facilities have been paid in full and the agreements have been terminated.
Terminated CoBank Credit Facilities
Frontier had two separate prepetition term loan facilities with CoBank, ACB, as administrative agent, lead arranger and a lender, and the other lenders. All outstanding amounts drawn under these agreements have been paid in full and the agreements were terminated on or before March 15, 2019.
Letters of Credit Facility
Frontier has a Continuing Agreement for Standby Letters of Credit with Deutsche Bank AG New York Branch (the LC Agreement). Frontier also has capacity to issue letters of credit under the DIP Revolving Credit Facility up to the full facility amount. As of December 31, 2020, $49 million and $90 million of undrawn Standby Letters of Credit had been issued under the LC Agreement and DIP Revolving Credit Facility, respectively. Letters of credit under the LC Agreement are fully cash collateralized.
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Covenants related to DIP Financing
The DIP Revolving Facility and DIP Term Loan Facility each include usual and customary negative covenants for DIP credit and DIP to exit loan agreements of this type, including covenants limiting Frontier and its restricted subsidiaries’ (other than certain covenants therein which are limited to subsidiary guarantors) ability to, among other things, incur additional indebtedness, create liens on assets, make investments, loans or advances, engage in mergers, consolidations, sales of assets and acquisitions, pay dividends and distributions and make payments in respect of certain material payment subordinated indebtedness, in each case subject to customary exceptions for credit and exit loan agreements of this type.
The DIP Revolving Facility includes certain customary representations and warranties, affirmative covenants and events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, certain events under ERISA, change of control or damage to a material portion of the collateral.
The DIP Term Loan Facility includes certain customary representations and warranties, affirmative covenants and events of default, including, but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, certain events under ERISA, upon the conversion date, unstayed judgments in favor of a third party involving an aggregate liability in excess of a certain threshold, change of control, upon the conversion date, specified governmental actions having a material adverse effect or condemnation or damage to a material portion of the collateral.
First Lien Notes due October 2027
On October 8, 2020, Frontier issued $1,150 million aggregate principal amount of First Lien Notes due October 2027, which mature on October 15, 2027, and bear interest at a rate of 5.875% per annum. Interest on the First Lien Notes due October 2027 is payable to holders of record semi-annually in arrears on April 15 and October 15 of each year, commencing April 15, 2021.
The notes were issued pursuant to an indenture, dated as of October 8, 2020 (the 2027 First Lien Indenture), by and among Frontier, the guarantors party thereto, the grantor party thereto, JPMorgan Chase Bank N.A., as collateral agent and Wilmington Trust, National Association, as trustee, and were issued in a private offering exempt from the registration requirements of the Securities Act, to persons reasonably believed to be qualified institutional buyers in accordance with Rule 144A under the Securities Act and to persons outside the United States pursuant to Regulation S under the Securities Act, at a purchase price equal to 100% of the principal amount thereof.
Prior to the conversion date, the First Lien Notes due October 2027 are secured on a super-priority basis and pari passu with the DIP Revolving Facility and the DIP Term Loan Facility, subject to permitted liens and certain exceptions, by all the assets that secure Frontier’s obligations under the DIP Revolving Facility and the DIP Term Loan Facility, on a super-priority basis and pari passu with the DIP Revolving Facility and the DIP Term Loan Facility. From the conversion date, the First Lien Notes due October 2027 are secured on a first-priority basis and pari passu with its senior secured credit facilities, subject to permitted liens and certain exceptions, by all the assets that secure Frontier’s obligations under its senior secured credit facilities and First Lien Notes due May 2028 on a first-priority basis and pari passu with its senior secured credit facilities and First Lien Notes due May 2028.
Frontier may redeem the First Lien Notes due October 2027 at any time, in whole or in part, prior to their maturity. If the notes are redeemed before October 15, 2023 the redemption price will be equal to 100% of the aggregate principal amount thereof, together with any accrued and unpaid interest, if any, to, but not including, the redemption date, plus a make-whole premium. If the notes are redeemed on or after October 15, 2023 the redemption price will be equal to the amounts set forth in the 2027 First Lien Indenture, together with any accrued and unpaid interest to the redemption date.
In addition, at any time before October 15, 2023, Frontier may redeem up to 40% of the First Lien Notes due October 2027 using the proceeds of certain equity offerings at a redemption price equal to 105.875% of the aggregate principal amount thereof, together with any accrued and unpaid interest, if any, to, but not including, the redemption date.
In the event of a change of control triggering event, each holder of the First Lien Notes due October 2027 will have the right to require Frontier to purchase the notes at a purchase price equal to 101% of the principal amount of the First Lien Notes due October 2027, plus accrued and unpaid interest, if any, to, but not including, the date of repurchase.
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First Lien Notes due May 2028
On November 25, 2020, Frontier issued $1,550 million aggregate principal amount of the First Lien Notes due May 2028, which mature on May 1, 2028, and bear interest at a rate of 5.000% per annum. Interest is payable to holders of record semi-annually in arrears on May 1 and November 1 of each year, commencing May 1, 2021.
The First Lien Notes due May 2028 were issued pursuant to an indenture, dated as of November 25, 2020 (the 2028 First Lien Indenture), by and among Frontier, the guarantors party thereto, the grantor party thereto, JPMorgan Chase Bank N.A., as collateral agent and Wilmington Trust, National Association, as trustee, and were issued in a private offering exempt from the registration requirements of the Securities Act, to persons reasonably believed to be qualified institutional buyers in accordance with Rule 144A under the Securities Act and to persons outside the United States pursuant to Regulation S under the Securities Act, at a purchase price equal to 100% of the principal amount thereof.
Prior to the conversion date, the First Lien Notes due May 2028 are secured on a super-priority basis and pari passu with the DIP Revolving Facility and DIP Term Loan Facility, subject to permitted liens and certain exceptions, by all the assets that secure Frontier’s obligations under the DIP Revolving Facility and the DIP Term Loan Facility, on a super-priority basis and pari passu with the DIP Revolving Facility and DIP Term Loan Facility. From the conversion date, the First Lien Notes due May 2028 are secured on a first-priority basis and pari passu with its senior secured credit facilities, subject to permitted liens and certain exceptions, by all the assets that secure Frontier’s obligations under its senior secured credit facilities and First Lien Notes due October 2027 on a first-priority basis and pari passu with its senior secured credit facilities and First Lien Notes due October 2027.
Frontier may redeem the First Lien Notes due May 2028 at any time, in whole or in part, prior to their maturity. If redeemed before May 1, 2024 the redemption price will be equal to 100% of the aggregate principal amount thereof, together with any accrued and unpaid interest, if any, to, but not including, the redemption date, plus a make-whole premium. If the notes are redeemed on or after May 1, 2024, the redemption price will be equal to the amounts set forth in the 2028 First Lien Indenture, together with any accrued and unpaid interest to the redemption date. In addition, at any time before May 1, 2024, Frontier may redeem up to 40% of the First Lien Notes due May 2028 using the proceeds of certain equity offerings at a redemption price equal to 105.000% of the aggregate principal amount thereof, together with any accrued and unpaid interest, if any, to, but not including, the redemption date.
In the event of a change of control triggering event, each holder of the First Lien Notes due May 2028 will have the right to require Frontier to purchase the notes at a purchase price equal to 101% of the principal amount of the First Lien Notes due May 2028, plus accrued and unpaid interest, if any, to, but not including, the date of repurchase.
New Second Lien Notes
On November 25, 2020, Frontier issued $1,000 million aggregate principal amount of the New Second Lien Notes, which mature on May 1, 2029, and bear interest at a rate of 6.750% per annum. Interest is payable to holders of record semi-annually in arrears on May 1 and November 1 of each year, commencing May 1, 2021.
The New Second Lien Notes were issued pursuant to an indenture, dated as of November 25, 2020 (the New Second Lien Indenture, and together with the 2027 First Lien Indenture and the 2028 First Lien Indenture, the Secured Note Indentures), by and among Frontier, the guarantors party thereto, the grantor party thereto, and Wilmington Trust, National Association, as trustee and collateral agent, and were issued in a private offering exempt from the registration requirements of the Securities Act, to persons reasonably believed to be qualified institutional buyers in accordance with Rule 144A under the Securities Act and to persons outside the United States pursuant to Regulation S under the Securities Act, at a purchase price equal to 100% of the principal amount thereof.
Prior to the conversion date, the New Second Lien Notes are superpriority obligations secured on a second-priority lien junior to the DIP Revolving Facility, the DIP Term Loan Facility, the First Lien Notes due October 2027 and the First Lien Notes due May 2028, subject to permitted liens and certain exceptions, by all the assets that secure Frontier’s obligations under the DIP Revolving Facility, the DIP Term Loan Facility, on a super-priority basis and pari passu with the DIP Revolving Facility and the DIP Term Loan Facility, the First Lien Notes due October 2027 and the First Lien Notes due May 2028. From the conversion date, the New Second Lien Notes are secured on a second-priority basis junior to the DIP Revolving Facility, the DIP Term Loan Facility, the First Lien Notes due October 2027 and the First Lien Notes due May 2028, subject to permitted liens and certain exceptions, by all the assets that secure Frontier’s obligations under its senior secured credit facilities and existing first lien notes on a second-priority basis junior to its senior secured credit facilities and New First Lien Notes.
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Frontier may redeem the New Second Lien Notes at any time, in whole or in part, prior to their maturity. If redeemed before May 1, 2024, the redemption price will be equal to 100% of the aggregate principal amount thereof, together with any accrued and unpaid interest, if any, to, but not including, the redemption date, plus a make-whole premium. If redeemed on or after May 1, 2024, the redemption price will be equal to the amounts set forth in the New Second Lien Indenture, together with any accrued and unpaid interest to the redemption date. In addition, at any time before November 1, 2023, Frontier may redeem up to 40% of the New Second Lien Notes using the proceeds of certain equity offerings at a redemption price equal to 106.750% of the aggregate principal amount thereof, together with any accrued and unpaid interest, if any, to, but not including, the redemption date.
In the event of a change of control triggering event, each holder of the New Second Lien Notes will have the right to require Frontier to purchase the notes at a purchase price equal to 101% of the principal amount of the New Second Lien Notes, plus accrued and unpaid interest, if any, to, but not including, the date of repurchase.
Covenants related to our Secured Notes
Each of the Secured Note Indentures contain customary negative covenants, subject to a number of important exceptions and qualifications, including, without limitation, covenants related to incurring additional debt and issuing preferred stock; incurring or creating liens; redeeming and/or prepaying certain debt; paying dividends on stock or repurchasing stock; making certain investments; engaging in specified sales of assets; entering into transactions with affiliates; and engaging in consolidation, mergers and acquisitions. Certain of these covenants will be suspended during such time, if any, that the Secured Notes, as applicable, have investment grade ratings by at least two of Moody’s, S&P or Fitch. The Secured Note Indentures also provide for customary events of default which, if any of them occurs, would permit or require the principal of and accrued interest on the applicable series of Secured Notes to become or to be declared due and payable.
Covenants related to other debt
The indentures governing our unsecured notes and other subsidiary indebtedness limit our ability to create liens on our assets securing indebtedness and our subsidiaries’ assets or merge or consolidate with other companies, our subsidiaries’ ability to borrow funds and to engage in change of control transactions, subject to important exceptions and qualifications.
On April 14, 2020, the Company Parties filed the Chapter 11 Cases. The filing of the Chapter 11 Cases constituted an event of default that accelerated substantially all of our debt covenants other than those now governing our DIP Revolving Facility, DIP Term Loan Facility, and Secured Note Indentures.
Shareholder Rights Plan
On July 1, 2019, our Board of Directors adopted a shareholder rights plan designed to protect our NOLs from the effect of limitations imposed by federal and state tax rules following a change in the ownership of our stock. This plan was designed to deter an “ownership change” (as defined in IRC Section 382) from occurring, and therefore protect our ability to utilize our federal and state net operating loss carryforwards in the future. Pursuant to the shareholder rights plan, if a shareholder (or group of affiliated or associated persons) acquires beneficial ownership of 4.9 percent or more of the outstanding shares of Frontier’s common stock without prior approval of our Board of Directors or without meeting certain customary exceptions (such as a result of repurchases of stock by Frontier, dividends or distributions by Frontier or certain inadvertent actions by our stockholders), the rights would become exercisable and entitle shareholders (other than the acquiring shareholder or group) to purchase additional shares of Frontier at a significant discount and result in significant dilution in the economic interest and voting power of acquiring shareholder or group. For purposes of calculating percentage ownership under the plan, “outstanding shares” of common stock include all of the shares of common stock actually issued and outstanding. Beneficial ownership is determined as provided in the rights plan and generally includes, without limitation, any ownership of securities a person would be deemed to actually or constructively own for purposes of Section 382 of the IRC or the regulations promulgated thereunder.
The plan is not meant to be an anti-takeover measure and our Board of Directors has established a procedure to consider requests to exempt the acquisition of our common stock from the rights plan, if such acquisition would not limit or impair the availability of our NOLs. Such determination will be made in the sole and absolute discretion of our Board of Directors, upon request by any person prior to the date upon which such person would otherwise become the beneficial owner of 4.9 percent or more of the outstanding shares of our common stock. In addition, if our Board of Directors determines in good faith that a person has inadvertently become the beneficial owner of 4.9 percent or
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more of the outstanding shares of our common stock, and such person divests as promptly as practicable a sufficient number of shares of common stock so that such person beneficially owns less than 4.9 percent, then such person will not cause the rights under the plan to become exercisable.
This summary description of the rights plan does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, dated as of July 1, 2019, by and between us and Computershare Trust Company, N.A., as Rights Agent, filed as an exhibit to our Periodic Report on Form 8-K filed on July 1, 2019.
See “Other Information Related to the Restructuring” below for a discussion on the potential impact of the restructuring on our NOLs.
Chapter 11 Cases and Other Related Matters
Restructuring Support Agreement
On April 14, 2020, the Company Parties entered into the Restructuring Support Agreement with the Consenting Noteholders, pursuant to which the Consenting Noteholders agreed, subject to certain terms and conditions, to support the Restructuring of the existing debt of, existing equity interests in, and certain other obligations of the Company Parties, pursuant to a pre-arranged Plan to be filed in the Chapter 11 Cases.
In accordance with the Restructuring Support Agreement, the Consenting Noteholders agreed, among other things, to:
(i)support the transactions (the Restructuring Transactions) described in, within the timeframes outlined in, and in accordance with the Restructuring Support Agreement;
(ii)not take any action, directly or indirectly, that is reasonably likely to interfere with acceptance, implementation, or consummation of the Restructuring Transactions;
(iii)vote each of its Senior Notes Claims (as defined in the Restructuring Support Agreement) to accept the Plan; and
(iv)not transfer Senior Notes Claims held by each Consenting Noteholders except with respect to limited and customary exceptions, including requiring any transferee to either already be bound or become bound by the terms of the Restructuring Support Agreement.
In accordance with the Restructuring Support Agreement, the Company Parties agreed, among other things, to:
(i)support and take all steps reasonably necessary and desirable to consummate the Restructuring Transactions in accordance with the Restructuring Support Agreement;
(ii)support and take all steps reasonably necessary and desirable to obtain entry of (a) the final orders of the Bankruptcy Court authorizing the relevant Company Parties’ entry into the documents governing a senior secured superpriority DIP financing facility, (b) the order of the Bankruptcy Court approving the disclosure statement related to the Plan pursuant to section 1125 of the Bankruptcy Code and (c) the Bankruptcy Court’s order confirming the Plan;
(iii)use commercially reasonable efforts to obtain any and all required governmental, regulatory, and/or third-party approvals for the Restructuring Transactions;
(iv)act in good faith and use commercially reasonable efforts to execute and deliver certain required documents and agreements to effectuate and consummate the Restructuring Transactions as contemplated by the Restructuring Support Agreement;
(v)operate their businesses in the ordinary course of business in a manner consistent with the Restructuring Support Agreement and past practice and use commercially reasonable efforts to preserve their businesses; and
(vi)not, directly or indirectly, object to, delay, impede, or take any other action to interfere with acceptance, implementation, or consummation of the Restructuring Transactions.
The Restructuring Support Agreement may be terminated upon the occurrence of certain events, including the failure to meet specified milestones related to consummation of the Plan. In addition, the Restructuring Support Agreement shall automatically terminate on the Effective Date of the Plan once all conditions precedent to the Plan have been satisfied.
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Chapter 11 Cases
As an initial step towards implementation of the Plan, on the Petition Date, the Company Parties filed the Chapter 11 Cases. Each Company Party continues to operate its business as a “debtor in possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. The Chapter 11 Cases are being jointly administered under the caption In re Frontier Communications Corporation., et al., Case No. 20-22476 (RDD).
In general, as debtors-in-possession under the Bankruptcy Code, we are authorized to continue to operate as an ongoing business, however, we may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. To ensure the Company Parties’ ability to continue operating in the ordinary course of business and minimize the effect of the Restructuring on the Company Parties’ customers and employees, the Company Parties filed certain motions and applications intended to limit the disruption of the bankruptcy proceedings on its operations (the First Day Motions), including authority to pay employee wages and benefits, and pay vendors and suppliers for goods and services provided both before and after the filing date, which were approved after a final hearing held on May 22, 2020. Pursuant to the First Day Motions, the Bankruptcy Court authorized us to conduct our business activities in the ordinary course, including, among other things and subject to the terms and conditions of such orders: continue to operate our cash management system and honor certain prepetition obligations related thereto; maintain existing business forms; continue to perform intercompany transactions; obtain super priority administrative expense status for post-petition intercompany balances; pay certain prepetition claims of critical vendors, lien claimants and section 503(b)(9) of the Bankruptcy Code claimants in the ordinary course of business on a post-petition basis; pay prepetition employee wages, salaries, other compensation and reimbursable employee expenses and continue employee benefits programs; pay obligations under prepetition insurance policies, continue to pay certain brokerage fees; renew, supplement, modify or purchase insurance coverage; maintain our surety bond program; pay certain prepetition taxes and fees; honor certain prepetition obligations to customers and continue certain customer programs in the ordinary course of business; and pay or honor prepetition claims of content providers.
Plan and Disclosure Statement
On May 15, 2020, the Company Parties filed a proposed Joint Plan of Reorganization and related Disclosure Statement, each of which were amended on June 26, 2020, June 29, 2020, June 30, 2020, August 17, 2020 and August 21, 2020. On May 15, 2020, the Debtors also filed a proposed order approving the Disclosure Statement and various plan solicitation materials, including the solicitation and voting procedures, which was revised on June 29, 2020 (including modifications to some of the exhibits). On June 30, 2020, the Bankruptcy Court entered the modified order approving the adequacy of the Disclosure Statement and the solicitation and notice procedures and the forms of voting ballots and notices in connection therewith. The order established June 29, 2020 as the voting record date, July 2, 2020 as the solicitation launch date and July 31, 2020 as the voting deadline.
On August 21, 2020, the Company Parties filed the Plan with the Bankruptcy Court. On August 27, 2020, the Bankruptcy Court entered the Confirmation Order, which approved and confirmed the Plan. The Effective Date of the Plan will occur once all conditions precedent to the Plan have been satisfied.
The Plan as approved and confirmed by the Bankruptcy Court provides for:
the applicable (x) Debtors, with the consent of the Consenting Noteholders then holding greater than 50.1% of the aggregate outstanding principal amount of senior notes claims that are held by all Consenting Noteholders subject to the Restructuring Support Agreement as of such date (the Required Consenting Noteholders), or (y) Reorganized Debtors taking any action as may be necessary or advisable to effectuate the restructuring transactions described in the Plan and Restructuring Transactions Memorandum (as defined in the Plan), including;
the execution, delivery, and filing of any organizational and governance documents for the Reorganized Company Parties;
any and all actions necessary or appropriate to effectuate the Secured Creditor Settlement (as defined below); and
the execution, delivery, and filing of all agreements, indentures, notes, filings, documents, and instruments delivered or entered into in connection with one or more DIP financing facilities, which shall be used to repay certain of the Company Parties’ prepetition secured indebtedness and shall convert into an exit facility on the Effective Date (a DIP-to-Exit Facility), and a DIP revolving financing facility, which shall, subject to certain conditions, convert into an exit revolving facility (a DIP-to-Exit Revolving Facility and, together with a DIP-to-Exit Facility, DIP Facilities);
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the final satisfaction, compromise, settlement, release, and discharge of claims arising under, derived from, secured by, based on, or related to any DIP-to-Exit Facility documents or DIP-to-Exit Revolving Facility documents, on the Effective Date in exchange for payment in full in cash or, at the Company Parties’ election, and solely to the extent permitted under DIP-to-Exit Facility documents or DIP-to-Exit Revolving Facility documents, as applicable, or as otherwise agreed, such holder’s pro rata share of the applicable exit facilities;
on the Effective Date, issuance of takeback debt by one or more of the Reorganized Company Parties (the Takeback Debt), in a principal amount of $750 million, which shall include the following terms (which may be modified subject to requisite consent under the Plan):
an interest rate that is either (a) no more than 2.50% higher than the interest rate of the next most junior secured debt facility to be entered into on the Effective Date if the Takeback Debt is secured on a third lien basis or (b) no more than 3.50% higher than the interest rate of the most junior secured debt facility to be entered into on the Effective Date if the Takeback Debt is unsecured;
a maturity of no less than one year outside of the longest-dated debt facility to be entered into by the Reorganized Company Parties on the Effective Date, provided that in no event shall the maturity of the Takeback Debt be longer than eight years from the Effective Date;
to the extent the Original Second Lien Notes claims are reinstated under the Plan, the Takeback Debt will be third lien debt, provided that to the extent the Original Second Lien Notes claims are paid in full in cash during the pendency of the Chapter 11 Cases or under the Plan, the Company Parties and the Required Consenting Noteholders will agree on whether the Takeback Debt will be secured or unsecured, within three business days of the Company Parties’ delivery to the Consenting Noteholders of a term sheet for the financing to repay the Second Lien Notes in full in cash that contains terms and conditions reasonably acceptable to the Company Parties and the Required Consenting Noteholders;
the Takeback Debt amount is subject to downward adjustment by the Consenting Noteholders holding at least sixty-six and two-thirds percent of the aggregate outstanding principal amount of senior notes that are held by all Consenting Noteholders; and
all other terms including, without limitation, covenants and governance, shall be reasonably acceptable to the Company Parties and the Required Consenting Noteholders; provided that such terms shall not be more restrictive than those in the indenture for the Second Lien Notes.
The Plan, among other things and subject to the terms of the Secured Creditor Settlement, contemplates the following treatment of claims against and interests in the Company Parties:
at the option of the applicable Reorganized Company Party, holders of secured claims against a Company Party that, absent its secured status, would be entitled to priority in right of payment under section 507(a)(8) of the Bankruptcy Code (determined irrespective of time limitations) (the Secured Tax Claims) shall receive (i) payment in full in cash or (ii) payment in cash made in equal semi-annual cash payments commencing as of the Effective Date or as soon as reasonably practicable thereafter and continuing for five years, in an aggregate amount equal to such claim, together with interest at the applicable non-default contract rate under non-bankruptcy law;
at the option of the applicable Company Party, holders of claims entitled to priority in right of payment under section 507(a) of the Bankruptcy Code other than Administrative Claims or Priority Tax Claims (each as defined in the Plan) shall receive payment in full in cash or such other treatment rendering such claims unimpaired;
claims arising under, derived from, based on, or related to the Company’s Revolver shall be repaid on or before the Effective Date, including payment of interest payments calculated at the non-default contract rate through the earlier of the Effective Date or repayment of the Revolver in full in cash (which shall include accrued but unpaid postpetition interest);
claims arising under, derived from, based on, or related to the JPM Credit Agreement shall be repaid on or before the Effective Date or reinstated on the Effective Date solely in the event that financing to repay such claims cannot be obtained, including payment of interest payments calculated at the non-default contract rate through the earlier of the Effective Date or repayment of the Term Loan B in full in cash (which shall include accrued but unpaid postpetition interest);
claims arising under, derived from, based on, or related to the Original First Lien Notes, issued pursuant to the indenture, dated as of March 15, 2019, by and among the Company, as issuer, the subsidiary guarantors party thereto, JPMorgan Chase Bank, N.A., as collateral agent, and Wilmington Trust, National Association, as successor trustee shall be repaid on or before the Effective Date or reinstated on the Effective Date, including payment of interest payments calculated at the non-default contract rate through the earlier of the
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Effective Date or repayment of the Original First Lien Notes in full in cash (which shall provide for the payment of accrued but unpaid postpetition interest);
claims arising under, derived from, based on, or related to the Original Second Lien Notes, issued pursuant to that certain indenture, dated as of March 19, 2018, by and among the Company, as issuer, the subsidiary guarantors party thereto, and Wilmington Savings Fund Society FSB, as successor trustee and successor collateral agent (the Second Lien Notes Trustee) shall be repaid on or before the Effective Date or reinstated on the Effective Date, including payment of interest payments calculated at the non-default contract rate as required through the earlier of the Effective Date or repayment of the Second Lien Notes in full in cash (which shall provide for the payment of accrued but unpaid postpetition interest);
claims arising under, derived from, based on or related to (a) the 8.500% secured notes due November 15, 2031, issued by Frontier Southwest Incorporated pursuant to the Restated Indenture, dated June 1, 1940, by and among Frontier Southwest Incorporated, as issuer, and BOKF, NA, as successor trustee, and (b) Rural Utilities Service loan contracts due January 3, 2028 (collectively, the Subsidiary Secured Notes) shall be reinstated on the Effective Date, with holders of such claims receiving ordinary course cash interest payments at the applicable non-default contract rate through the Effective Date;
claims arising under, derived from, based on or related to the 6.750% unsecured notes due May 15, 2027 issued by Frontier California Inc., the 6.860% unsecured notes due February 1, 2028 issued by Frontier Florida LLC, the 6.730% unsecured notes due February 15, 2028 issued by Frontier North Inc., the 8.400% unsecured notes due October 15, 2029 issued by Frontier West Virginia Inc. and the applicable indentures, debentures and purchase agreements associated therewith shall be reinstated on the Effective Date, with holders of such claims receiving ordinary course cash interest payments at the applicable non-default contract rate through the Effective Date;
holders of claims arising under, derived from, based on, or related to the unsecured notes issued by the Company shall receive their (i) pro rata share of and interest in the Incremental Senior Notes Payment Amount (as defined in the Plan) and (ii) pro rata share of and interest in (after first reducing, for distribution purposes only, the amount of each such holder’s senior notes claim on a dollar-for-dollar basis by the amount of Incremental Senior Notes Payments, and solely to the extent actually paid): (a) 100% of the Reorganized Company’s new common stock, subject to dilution by the Reorganized Company’s management incentive plan; (b) the Takeback Debt, if any; and (c) the Surplus Cash (as defined in the Plan), if any;
to the extent not already satisfied during the Chapter 11 Cases, holders of certain other claims that are not secured shall receive: (i) payment in full in cash; (ii) reinstatement; or (iii) such other treatment rendering such claims unimpaired, in each case as reasonably acceptable to the Company Parties and the Required Consenting Noteholders;
holders of secured claims (other than claims arising under, derived from, based on or related to the Revolver, the Term Loan B, the Original First Lien Notes, the Second Lien Notes, the Subsidiary Secured Notes, the Secured Tax Claims or DIP Facilities) shall receive, at the option of the applicable Company Party: (i) payment in full in cash, (ii) reinstatement; (iii) delivery of the collateral securing such claim; or (iv) such other treatment rendering such claim unimpaired;
claims subject to subordination under section 510(b) of the Bankruptcy Code shall be cancelled, released, discharged, and extinguished;
all intercompany claims and intercompany interests shall be either (a) reinstated or (b) cancelled on the Effective Date; and
all equity securities in the Company shall be cancelled, released and extinguished on the Effective Date.
For more information on the repayment of the Revolver, the Original First Lien Notes, the Term Loan B and the Original Second Lien Notes, see -Term Loan and Revolving Credit Facilities and New Secured Notes.
Secured Creditor Settlement
The Plan will effectuate the settlement, release, compromise, discharge, and other resolution of all outstanding claims, interests, and causes of action, including the Objection of the Ad Hoc First Lien Committee to the Debtors’ Third Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 857], the Objection of the Second Lien Notes Trustee to the Debtors’ Third Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 858], and the Second Lien Committee’s Joinder to the Second Lien Notes Trustee’s Objection [Docket No. 860], as between the Company Parties, the ad hoc committee of certain unaffiliated holders of Term Loan B claims and Original First Lien Notes claims (the First Lien Committee) represented by Paul, Weiss, Rifkind, Wharton & Garrison LLP and PJT Partners LP, the Second Lien Notes Trustee, and the ad hoc committee of certain unaffiliated holders of Original Second Lien Notes claims represented by Quinn Emanuel
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
Urquhart & Sullivan, LLP (the Second Lien Committee) (such settlement, the Secured Creditor Settlement). The Secured Creditor Settlement includes, among other terms and subject to certain conditions, the following key terms:
holders of Term Loan B claims, Original First Lien Notes claims, and Original Second Lien Notes claims, and the First Lien Committee and Second Lien Committee, shall be deemed to have consented to reinstatement and shall not allege, and shall be deemed to have waived and foregone any objections to, any defaults arising from the transactions set forth in the Plan;
holders of Term Loan B claims, Original First Lien Notes claims, and Original Second Lien Notes claims, and the First Lien Committee and Second Lien Committee shall be deemed to have consented to and shall not impede or otherwise delay the Debtors’ pursuit of certain debtor in possession/exit financing facilities;
holders of Term Loan B claims, Original First Lien Notes claims, and Original Second Lien Notes claims, and the First Lien Committee and Second Lien Committee, shall waive and forgo any and all “make-whole” claims and claims to default interest under the JPM Credit Agreement, the Original First Lien Notes indenture, and/or the Second Lien Notes indenture, as applicable;
holders of Revolver claims, Term Loan B claims, Original First Lien Notes claims (including the First Lien Committee), the applicable agents, and the Original First Lien Notes trustee shall be deemed to have waived any enforcement of any turnover or payment over rights under the Junior Lien Intercreditor and Subordination Agreement, dated as of March 19, 2018, against the Debtors, Second Lien Notes Trustee, or holders of Original Second Lien Notes claims with respect to certain obligations and amounts;
the Company Parties shall make a $48 million payment to holders of Term Loan B claims, a $9 million payment for the benefit of holders of Original First Lien Notes claims, and, in the event that the Effective Date occurs on or after March 31, 2021, an incremental payment of $8 million to holders of Term Loan B claims, subject to the provisions and conditions of the Plan with respect to such payments;
the Company Parties or the Reorganized Company Parties, as applicable, shall pay in full in cash all reasonable First Lien Committee fees and Second Lien Committee fees that are due and owing under the applicable engagement letters; and
all adequate protection currently in effect shall remain in effect until entry of a final adequate protection order and, upon the Company Parties’ entry into any DIP Facilities, the Bankruptcy Court shall enter a final adequate protection order granting, among other things, adequate protection to secured creditors in the form of (i) liens and claims on all collateral securing any future DIP Facilities, and (ii) cash payments in the amount of accrued interest.
DIP Financing
As previously disclosed, prior to the commencement of the Chapter 11 Cases, the Company and certain of its domestic subsidiaries entered into that certain Commitment Letter, dated April 14, 2020 (as amended by that certain Letter Agreement, dated April 28, 2020, by that certain Letter Agreement, dated May 12, 2020, by that certain Letter Agreement, dated June 10, 2020, by that certain Letter Agreement, dated June 29, 2020 and as further amended, modified or supplemented from time to time, the Original Commitment Letter) with Goldman Sachs Bank USA (GS Bank), Deutsche Bank AG New York Branch (DBNY), Deutsche Bank Securities Inc. (DBSI and, collectively with DBNY, DB), Barclays Bank PLC (Barclays), Morgan Stanley Senior Funding, Inc. (MSSF), Credit Suisse AG, Cayman Islands Branch (CS) and Credit Suisse Loan Funding LLC (CSLF and, together with CS and their respective affiliates, Credit Suisse, and together with GS Bank, DB, Barclays and MSSF, the Original Commitment Parties), pursuant to which, and subject to the satisfaction of certain customary conditions, including the approval of the Bankruptcy Court, GS Bank, DBNY, Barclays, MSSF and CS committed to provide a portion of the senior secured superpriority revolving credit facility in an aggregate principal amount of $460 million, which, upon satisfaction of certain conditions, including the effectiveness of the Plan, would convert into a longer term revolving exit facility. The Original Commitment Letter lapsed in accordance with its terms.
The Company and certain of its domestic subsidiaries entered into a Commitment Letter, dated August 13, 2020, with the Original Commitment Parties, which was amended and restated by that certain Amended and Restated Commitment Letter, dated August 28, 2020, with the Original Commitment Parties and JPMorgan Chase Bank, N.A. (JPM) (collectively, the New Commitment Parties), pursuant to which, and subject to the satisfaction of certain customary conditions, including the approval of the Bankruptcy Court, GS Bank, JPM, DBNY, MSSF and CS committed to provide a portion of the $625 million DIP Revolving Facility, which, upon satisfaction of certain conditions, including the effectiveness of the Plan, would convert into a longer term revolving exit facility (the Exit Revolving Facility).
On August 14, 2020, the Company and certain of its subsidiaries entered into an engagement letter, which was amended and restated on August 28, 2020 by that certain Amended and Restated Engagement Letter by and among
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
the Company and certain of its subsidiaries and Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, DBSI, Barclays Capital Inc., Morgan Stanley & Co. LLC and Credit Suisse Securities (USA) LLC, in connection with a proposed issuance, offering and sale senior secured superpriority first lien and/or second lien notes to be issued by the Company or an affiliate thereof.
The Company and certain of its domestic subsidiaries also entered into that certain Engagement Letter, dated August 14, 2020, with GS Bank, which was amended and restated by that certain Amended and Restated Engagement Letter, dated August 28, 2020 with the New Commitment Parties, in connection with the DIP Term Loan Facility, which, upon satisfaction of certain conditions, including the effectiveness of the Plan, would convert into a term loan Exit Facility (the Exit Term Loan Facility).
On August 28, 2020, the Company Parties filed the DIP Financing Motion with the Bankruptcy Court to approve the indentures, credit, guarantee and security documents governing the obligations under the DIP Financing. On September 17, 2020, the Bankruptcy Court entered the final order approving the DIP Financing Motion.
Pursuant to the DIP financing order, the Debtors were authorized to issue the First Lien Notes due May 2028, the New Second Lien Notes, and the Incremental DIP Term Loan Facility. However, the original financing letters approved by the DIP financing order expired following the closing of the DIP Revolving Facility, Initial DIP Term Loan Facility, and First Lien Notes due October 2027. On November 13, 2020, the Debtors, via court-entered stipulation, obtained approval from the Bankruptcy Court to enter into supplemental financing letters to facilitate raising the First Lien Notes due 2028, the New Second Lien Notes, and the Incremental DIP Term Loan Facility. Collectively, the DIP financing has been used to refinance the Original First Lien Notes, the Second Lien Notes, and the Term Loan B. See “-Term Loan and Revolving Credit Facilities and New Secured Notes” for more information on the terms of the DIP financing.
On October 8, 2020, the Company issued $1,150 million aggregate principal amount of the First Lien Notes due October 2027, entered into the $625 million DIP Revolving Facility and entered into the $500 million Initial DIP Term Loan Facility. The Company used the proceeds from the issuance, together with the proceeds of the DIP Term Loan Facility and cash on hand, to (i) repay in full the Company’s $1,650 million aggregate principal amount Original First Lien Notes and (ii) pay related interest, fees and expenses.
On November 25, 2020 the company issued $1,550 million aggregate principal amount of the First Lien Notes due May 2028, $1,000 million aggregate principal amount of the New Second Lien Notes, and borrowed an incremental $750 million pursuant to the Incremental DIP Term Loan Facility. The company used the proceeds from the issuance, the incremental borrowing, and cash on hand to (i) repay all outstanding borrowings under our prepetition Term Loan B, (ii) repay in full the Original Second Lien Notes, and (iii) pay related interest, fees and expenses incurred in connection therewith.
For information about events related to the DIP Financing, refer to “-Capital Resources”.
Regulatory Approvals
As set forth in the Plan and the Disclosure Statement, in order to implement the restructuring contemplated by the Plan, the Company Parties must satisfy several conditions after confirmation of the Plan but prior to emergence from Chapter 11. Among other things, the Company Parties must obtain requisite regulatory approvals, including FCC and required PUC approvals in certain states. As part of the regulatory approval process, the Company made a number of affirmative commitments and the FCC and states have imposed additional conditions on the Company as part of approval for the Restructuring, including specific investment, broadband service deployment, service quality improvements, reporting and compliance conditions. The regulatory approval process is moving forward, and the Company has received PUC approvals or favorable determinations in all of the required states at this time, except California. No assurance can be given as to the terms, conditions, and timing of the remaining California approval.
Effects of the Restructuring and the Chapter 11 Cases on Our Liquidity
The filing of the Chapter 11 Cases constituted an event of default that accelerated substantially all of our obligations under the documents governing the JPM Credit Facilities, the Original First Lien Notes, the Second Lien Notes, our unsecured notes and debentures and the secured and unsecured debentures of our subsidiaries. However, pursuant to the Bankruptcy Code and as described in “Part II. Other Information-Item 1. Legal Proceedings”, the filing of the Bankruptcy Petitions automatically stayed most actions against the Company Parties, including most actions to collect indebtedness incurred prior to the Petition Date or to exercise control over the Company Parties’ property. Accordingly, although the filing of the Bankruptcy Petitions triggered events of default under our existing debt
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
obligations, creditors are stayed from taking action as a result of these defaults. Additionally, under Section 502(b)(2) of the Bankruptcy Code, and subject to the terms of the DIP financing order providing for adequate protection payments to certain of our prepetition lenders, we are no longer required to pay interest on our indentures and credit facilities accruing on or after the Petition Date.
Additionally, in connection with the Chapter 11 Cases, we have incurred, and expect to continue to incur, significant professional fees and other costs in connection with the Chapter 11 Cases. There can be no assurance that our current liquidity is sufficient to allow us to satisfy our obligations related to the Chapter 11 Cases or to pursue confirmation of the Plan.
Other Information Related to the Restructuring
We have significant deferred tax assets, including NOLs, The impact of the Restructuring on the Company’s NOLs will depend on whether the Restructuring is structured as (i) a taxable disposition of substantially all of the assets and/or subsidiary stock of the Company, (ii) as a recapitalization of the Company, or (iii) some other alternative structure. If structured as a taxable disposition, we anticipate that NOLs of the Company (if any) remaining after the Restructuring will not be available to the Company after consummating the Restructuring. If structured as a recapitalization, we anticipate that the Company will experience an ownership change, and thus NOLs of the Company (if any) remaining after the Restructuring will be subject to limitation, such that the Company may not derive all of the benefits of any such remaining NOLs after consummating the Restructuring.
See “Risk Factors-Risks Related to the Restructuring, Our Indebtedness and Liquidity,” and Note 15 of the Notes to Consolidated Financial Statements for more information on the Restructuring and the risks related thereto. See “-Shareholder Rights Plan” for a description of the shareholder rights plan our Board of Directors adopted to protect our NOLs from the effect of limitations imposed by federal and state tax rules following a change in the ownership of our stock. Refer to Note 1 of the Notes to Consolidated Financial Statements for further discussion of the Company’s ability to continue as a going concern and Note 9 for further detail of our debt obligations as of and for the year ended December 31, 2020.
Off-Balance Sheet ArrangementsWe do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial statements.
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
Future Contractual Obligations and Commitments
A summary of our future contractual obligations and commercial commitments as of December 31, 2020 is as follows:
Payments due by period
($ in millions)
Total
Thereafter
Long term debt obligations,
reclassified to Liabilities
subject to compromise (1)
$
10,949
$
10,949
$
-
$
-
$
-
$
-
$
-
DIP-to-Exit secured
debt obligations (2)
4,950
4,950
-
-
-
-
-
Other secured long term debt
and subsidiary debt
obligations (3)
-
-
-
-
-
Interest on long-term debt (4)
2,591
Lease obligations
Purchase obligations
Liability for uncertain
tax positions
-
-
-
-
Total
$
20,001
$
17,299
$
$
$
$
$
(1) Includes unsecured debt issued by Frontier that has been reclassified to Liabilities subject to compromise as of December 31, 2020 on our consolidated balance sheet. Refer to Note 3 for additional details.
(2) Includes secured debt issued by Frontier under the DIP Term Loan Facility, the 2027 First Lien Indenture, the 2028 First Lien Indenture, and the New Second Lien Indenture that is included in Long Term Debt due within one year as of December 31, 2020 on our consolidated balance sheet. Refer to note 9 for additional details.
(3) Includes unsecured and secured debt issued by subsidiary companies of Frontier and other secured debt issued by Frontier included in Long Term Debt due within one year as of December 31, 2020 on our consolidated balance sheet.
(4) Includes interest incurred on DIP-to-Exit secured debt, other secured debt, and subsidiary secured and unsecured debt.
Our outstanding performance letters of credit decreased from $151 million to $139 million during the year ended December 31, 2020. Letters of credit exclude approximately $57 million of cash held in trust in lieu of issuing letters of credit for Zurich Insurance related claims.
In 2015, Frontier accepted the FCC’s CAF Phase II offer in 29 states, which provides $332 million in annual support and in return the Company is committed to make broadband available to approximately 774,000 locations within its footprint. This amount included approximately 41,000 locations and $19 million in annual support related to the four states of the Northwest Operations, which were disposed on May 1, 2020. To the extent we do not enable the required number of households with 10 Mbps downstream/1 Mbps upstream broadband service by the end of the CAF Phase II, or we are unable to satisfy other FCC CAF Phase II requirements, Frontier would be required to return a portion of the funds previously received.
In 2020, Frontier was awarded approximately $371 million over ten years to build gigabit-capable broadband over a fiber-to-the-premises network to approximately 127,000 locations across eight states (California, Connecticut, Florida, Illinois, New York, Pennsylvania, Texas, and West Virginia). Frontier submitted its Long Form application to the FCC on January 29, 2021 and, assuming the long-form application is granted by the FCC, anticipates that it will begin receiving funding on January 1, 2022, in which case, Frontier will be required to complete the buildout to the RDOF locations by December 31, 2027, with interim target milestones over this period. To the extent we do not enable the required number of locations with gigabit-capable broadband service by the end of the RDOF period, or we are unable to satisfy other FCC RDOF requirements, Frontier would be required to return a portion of the funds previously received.
Critical Accounting Policies and Estimates
The preparation of our financial statements requires management to make estimates and assumptions. There are inherent uncertainties with respect to such estimates and assumptions; accordingly, it is possible that actual results could differ from those estimates and changes to estimates could occur in the near term. The estimates which require the most significant judgment are listed below.
These critical accounting estimates have been reviewed with the Audit Committee of our Board of Directors. For a discussion of these and other accounting policies, see Note 1 of the Notes to Consolidated Financial Statements.
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts based on our estimate of our ability to collect accounts receivable. Our estimates are based on assumptions and other considerations, including payment history, customer financial performance, carrier billing disputes and aging analysis. Our estimation process includes general and specific reserves and varies by customer category. In 2020 and 2019, we had no “critical estimates” related to bankruptcies of communications companies or any other significant customers. See Notes 1 and 5 of the Notes to Consolidated Financial Statements for additional discussion.
Depreciation
The calculation of depreciation expense is based upon the estimated useful lives of the underlying property, plant and equipment and identifiable finite-lived intangible assets. Depreciation expense is principally based on the composite group method for substantially all of our property, plant and equipment assets. The estimates for remaining lives of the various asset categories are determined annually, based on an independent study. Among other considerations, these studies include models that consider actual usage, replacement history and assumptions about technology evolution for each category of asset. The latest study was completed in the fourth quarter of 2020 and did not result in any significant changes in remaining lives for any of our asset categories. A one-year decrease in the estimated useful lives of our property, plant and equipment would result in an increase of approximately $146 million to depreciation expense.
See Notes 6 and 7 of the Notes to Consolidated Financial Statements for additional discussion.
Asset Impairments
We review long-lived assets to be held and used, including customer lists and long-lived assets to be disposed of for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. When triggering events are identified, recoverability of assets to be held and used is measured by comparing the carrying amount of the asset to the future undiscounted net cash flows expected to be generated by the asset. Recoverability of assets held for sale is measured by comparing the carrying amount of the assets to their estimated fair market value. If any assets are considered to be impaired, the impairment is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value. Also, we periodically reassess the useful lives of our tangible and intangible assets to determine whether any changes are required.
Our indefinite lived trade name assets are evaluated for impairment annually. The annual process for assessing the carrying value of our trade name begins with a qualitative assessment of events and conditions similar to the assessment performed for goodwill. When events are identified, we evaluate the assets for impairment through comparison of the fair value of the trade name to the carrying value. The fair value of the trade name is determined using the relief from royalty method, which is a form of the income approach. As of December 31, 2019, no impairment was present for our trade name.
We considered whether the carrying values of indefinite-lived intangible assets, finite-lived intangible assets, and property plant and equipment may not be recoverable or whether the carrying value of certain finite-lived intangible assets were impaired, noting no impairment was present as of or for the year ended December 31, 2020.
Pension and Other Postretirement Benefits
We sponsor a defined benefit pension plan covering a significant number of our current and former employees as well as other postretirement benefit plans that provide medical, dental, life insurance and other benefits for covered retired employees and their beneficiaries and covered dependents. As of December 31, 2020, the unfunded benefit obligation for these plans recorded on our consolidated balance sheet was $2,243 million. During 2020, we contributed $115 million to these plans in cash and recorded $53 million of operating expense before capitalization, including a gain on disposal of $62 million related to the sale of our Northwest Operations, and $202 million of net non-operating expense, including $159 million of pension settlement costs. Pension and other postretirement benefit costs and obligations are dependent upon various actuarial assumptions, the most significant of which are the discount rate and the expected long-term rate of return on plan assets.
Our discount rate assumption is determined annually with assistance from our actuaries based on the pattern of expected future benefit payments and the prevailing rates available on long-term, high quality corporate bonds with durations approximate to that of our benefit obligation. As of December 31, 2020, and 2019, we utilized an estimation technique that is based upon a settlement model (Bond:Link) that permits us to closely match cash flows to the expected
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
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payments to participants. This rate can change from year-to-year based on market conditions that affect corporate bond yields.
We are utilizing a discount rate of 2.60% as of December 31, 2020 for our qualified pension plan, compared to rates of 3.40% and 4.30% in 2019 and 2018, respectively. The discount rate for postretirement plans as of December 31, 2020 was a range of 2.60% to 2.80% compared to a range of 3.40% to 3.50% in 2019 and 4.30% to 4.40% in 2018.
In the following table, we show the estimated sensitivity of our pension and other postretirement benefit plan liabilities to a 25 basis point change in the discount rate as of December 31, 2020:
($ in millions)
Increase in Discount Rate of 25 bps
Decrease in Discount Rate of 25 bps
Pension plans
Projected benefit obligation
$
(92)
$
Other postretirement plans
Accumulated postretirement benefit obligation
$
(35)
$
In developing the expected long-term rate of return assumption, we considered published surveys of expected market returns, 10 and 20 year actual returns of various major indices, and our own historical 5 year, 10 year and 20 year investment returns. The expected long-term rate of return on plan assets is based on an asset allocation assumption of 40% in long-duration fixed income securities, and 60% in equity securities and other investments. We review our asset allocation at least annually and make changes when considered appropriate. Our asset return assumption is made at the beginning of our fiscal year. In 2020, 2019 and 2018, our expected long-term rate of return on plan assets was 7.50%. Our actual return on plan assets in 2020 was 13%. For 2021, we expect to assume a rate of return of 7.50%. Our pension plan assets are valued at fair value as of the measurement date.
For additional information regarding our pension and other postretirement benefits (see Note 20 to the Notes to Consolidated Financial Statements).
Income Taxes
We file a consolidated federal income tax return. We utilize the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recorded for the tax effect of temporary differences between the financial statement basis and the tax basis of assets and liabilities using tax rates expected to be in effect when the temporary differences are expected to reverse. Actual income taxes could vary from these estimates due to future changes in governing law or review by taxing authorities.
We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we are not able to realize a portion of our net deferred tax assets in the future, we would make an adjustment to the deferred tax asset valuation allowance, which would increase the provision for income taxes.
The tax effect of a change in tax law or rates included in income tax expense from continuing operations includes effect of changes in deferred tax assets and liabilities initially recognized through a charge or credit to other comprehensive income. The residual tax effects typically are released when the item giving rise to the tax effect is disposed of, liquidated, or terminated. Since the Company has adopted the portfolio approach to release the residual tax effects, there is no release for the residual tax effect from the sale of our Northwest Operations.
Recent Accounting Pronouncements
See Note 2 of the Notes to Consolidated Financial Statements included in Part IV of this report for additional information related to recent accounting pronouncements.
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FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk in the normal course of our business operations due to ongoing investing and funding activities, including those associated with our pension plan assets. Market risk refers to the potential change in fair value of a financial instrument as a result of fluctuations in interest rates and equity prices. We do not hold or issue derivative instruments, derivative commodity instruments or other financial instruments for trading purposes. As a result, we do not undertake any specific actions to cover our exposure to market risks, and we are not party to any market risk management agreements other than in the normal course of business. Our primary market risk exposures from interest rate risk and equity price risk are as follows:
Interest Rate Exposure
Our exposure to market risk for changes in interest rates relates primarily to the interest-bearing portion of our pension investment portfolio and the related actuarial liability for pension obligations, as well as our floating rate indebtedness. As of December 31, 2020, 93% of our total debt had fixed interest rates. We had no interest rate swap agreements in effect at December 31, 2020. We believe that our currently outstanding obligation exposure to interest rate changes is minimal.
Our discount rate assumption for our pension benefit obligation is determined at least annually, or whenever required, with assistance from our actuaries based on the pattern of expected future benefit payments and the prevailing rates available on long-term, high quality corporate bonds with durations approximate to that of our benefit obligation. As of December 31, 2020, our discount rate utilized in calculating our benefit plan obligation was 2.60%.
Our objectives in managing our interest rate risk are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, 7% of our outstanding borrowings at December 31, 2020 have floating interest rates. The annual impact of 100 basis points change in the LIBOR would result in approximately $13 million of additional interest expense. An adverse change in interest rates would increase the amount that we pay on our variable rate obligations and could result in fluctuations in the fair value of our fixed rate obligations. Based upon our overall interest rate exposure, a near-term change in interest rates would not materially affect our consolidated financial position, results of operations or cash flows.
At December 31, 2020, the fair value of our debt was estimated to be approximately $11.6 billion, based on quoted market prices, our overall weighted average borrowing rate was 8.065% and our overall weighted average maturity was approximately 4.9 years. As of December 31, 2020, prior to the filing of the Chapter 11 Cases, there had been no significant change in the weighted average maturity applicable to our obligations since December 31, 2019. However, the filing of the Chapter 11 Cases has accelerated the maturity of substantially all of our debt obligations and we have not been paying interest on our unsecured debt obligations since the filing of bankruptcy. Refer to Notes 3 and 9 for discussion of the impact of the Chapter 11 Cases on our debt obligations.
Equity Price Exposure
Our exposure to market risks for changes in equity security prices as of December 31, 2020 is primarily limited to our pension plan assets. We have no other security investments of any significant amount.
Our Pension Plan assets decreased from $2,730 million at December 31, 2019 to $2,507 million at December 31, 2020, a decrease of $223 million, or 8%. This decrease was primarily a result of benefit payments of $538 million, the impact of the sale of the Northwest Operations of $70 million, partially offset by contributions of $64 million and investment returns of $321 million.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
The following documents are filed as part of this Report:
1) Financial Statements - See Index on page.
2) Supplementary Data - Quarterly Financial Data is included in the Financial Statements (see 1 above).
3) Schedule of Pledged Subsidiary Financial Data.
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FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A.Controls and Procedures
(i)Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, regarding the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15© and 15d-15© under the Securities Exchange Act of 1934, as amended). Based upon this evaluation, our principal executive officer and principal financial officer concluded, as of the end of the period covered by this report, December 31, 2020, that our disclosure controls and procedures were effective.
(ii)Internal Control Over Financial Reporting
a.Management’s annual report on internal control over financial reporting
Our management report on internal control over financial reporting appears on page.
b.Report of registered public accounting firm
The report of KPMG LLP, our independent registered public accounting firm, on internal control over financial reporting appears on page.
c.Changes in internal control over financial reporting
There have been no changes to our internal control over financial reporting identified in an evaluation thereof that occurred during the fiscal year of 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B.Other Information
None.
‎
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
Certain of the information required by this Item is incorporated by reference from a Form 10-K/A to be filed with the SEC within 120 days after December 31, 2020.
Executive Officers of the Registrant
Our Executive Officers as of March 3, 2021 were:
Name
Age
Current Position and Officer
Kenneth W. Arndt
Executive Vice President, Chief Operations Officer
Sheldon Bruha
Executive Vice President, Chief Financial Officer
Donald Daniels
Senior Vice President, Chief Accounting Officer
Steve Gable
Executive Vice President, Chief Technology Officer
Bernard L. Han
President & Chief Executive Officer
Mark D. Nielsen
Executive Vice President, Chief Legal Officer and Chief Transaction Officer
There is no family relationship between the directors or executive officers. The term of office of each of the foregoing officers of Frontier is annual and will continue until a successor (if any) has been elected and qualified.
KENNETH W. ARNDT has been with Frontier since 2003 and was appointed Executive Vice President and Chief Operations Officer in 2018. Previously he was EVP of Commercial Sales Operations. Mr. Arndt also had oversight of Frontier’s operations in Connecticut, New York, Ohio, Pennsylvania and West Virginia. Before joining Frontier, Mr. Arndt served as Vice President of Marketing for Lucent Technologies and Vice President of Sales and Marketing for Commonwealth Telephone Company in Pennsylvania.
SHELDON BRUHA was appointed Executive Vice President and Chief Financial Officer in 2019. He joined Frontier in February 2018 as Senior Vice President and Treasurer, responsible for Treasury, Investor Relations, Mergers & Acquisitions, and Risk & Insurance. Prior to joining Frontier, Mr. Bruha’s career in global finance included positions at CDI Corp. and senior financial positions heading corporate finance, treasury, tax, and investor relations for Cable & Wireless Communications in Miami and London. He started his financial career at Lehman Brothers, the global investment bank, and held senior investment banking positions in its New York and London offices, focusing on the telecommunications industry.
DONALD DANIELS joined Frontier in July 2014 and was appointed Senior Vice President and Chief Accounting Officer in 2018. Mr. Daniels was previously the Senior Vice President and Controller for Frontier. From October 2002 to July 2014 he held various positions with JetBlue Airways Corporation, including Corporate Controller, Chief Accounting Officer, Vice President and Controller, Assistant Controller, and Director of Financial Reporting. Prior to that Mr. Daniels held various positions of increasing responsibility at Delta Air Lines and Deloitte and Touche, LLP. Mr. Daniels is a veteran of the United States Army and a certified public accountant.
STEVE GABLE has been with Frontier since November 2012 and has been Executive Vice President and Chief Technology Officer since April 2015. Previously he served as Senior Vice President and Chief Information Officer. Prior to Frontier, Mr. Gable was Executive Vice President/CTO of Tribune Company while also serving as President of Tribune Digital. Before Tribune, Mr. Gable served as Vice President of Technology for Clear Channel Radio.
BERNARD L. HAN was appointed President and Chief Executive Officer in December 2019 after serving as an advisor to the Finance Committee of the Board from October 2019. He previously served as Executive Vice President of Strategic Planning at Dish Network Corp., a broadcast satellite service provider, a role he held from December 2015. Prior to that, Mr. Han served as the Chief Operating Officer of Dish Network Corp. from April 2009 to December 2015 and as the Chief Financial Officer of EchoStar Corporation, a global satellite services provider, from September 2006 to April 2009. From 2002 to 2005, Mr. Han served as the Chief Financial Officer and Executive Vice President of Northwest Airlines Corp. From 1996 to 2002, Mr. Han held several executive positions at America West Airlines, Inc., including Executive Vice President and Chief Financial Officer and Senior Vice President of Marketing and Planning.
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
From 1988 to 1995, Mr. Han held various finance and marketing positions at Northwest Airlines Corp. and American Airlines. Mr. Han is a member of the Board of Directors and Audit Committee of Frontier Airlines and previously served on the Board of Directors of ON Semiconductor Corporation. Mr. Han holds a B.S., M.S. and M.B.A. from Cornell University.
MARK D. NIELSEN has been with Frontier since 2014 and is Executive Vice President, Chief Legal Officer and Chief Transaction Officer. Prior to joining Frontier, he was Associate General Counsel and Chief Compliance Officer for Praxair Inc. and Vice President and Assistant General Counsel of Raytheon Company. Before that, Mr. Nielsen served as Chief Legal Counsel, and then Chief of Staff, to Massachusetts Governor Mitt Romney from 2004 to 2007.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
In accordance with General Instruction G(3) to Form 10-K, Frontier intends to file with the SEC the information required by this Item within 120 days after December 31, 2020.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
In accordance with General Instruction G(3) to Form 10-K, Frontier intends to file with the SEC the information required by this Item within 120 days after December 31, 2020.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
In accordance with General Instruction G(3) to Form 10-K, Frontier intends to file with the SEC the information required by this Item within 120 days after December 31, 2020.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services
In accordance with General Instruction G(3) to Form 10-K, Frontier intends to file with the SEC the information required by this Item within 120 days after December 31, 2020.
‎
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedules
List of Documents Filed as a Part of This Report:
(1)Index to Consolidated Financial Statements:
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Equity (Deficit) for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Pledged Subsidiaries Financial Data
All other schedules have been omitted because the required information is included in the consolidated financial statements or the notes thereto or is not applicable or not required.
(2)Index to Exhibits:
Exhibit No.
Description
2.1
Stock Purchase Agreement, dated as of December 16, 2013, by and between AT&T Inc. and Frontier (filed as Exhibit 2.1 to Frontier’s Current Report on Form 8-K filed on December 17, 2013).
2.2
Securities Purchase Agreement, dated as of February 5, 2015, by and between Verizon Communications Inc. and Frontier (filed as Exhibit 2.1 to Frontier’s Current Report on Form 8-K filed on February 5, 2015).
2.3
Purchase Agreement, dated as of May 28, 2019, between Frontier, Frontier Communications ILEC Holdings LLC and Northwest Fiber, LLC (filed as Exhibit 2.1 to Frontier’s Current Report on form 8-K filed on May 29, 2019).
2.4
Order Confirming the Fifth Amended Joint Plan of Reorganization of Frontier Communications Corporation and its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code (filed as Exhibit 2.1 to Frontier’s Current Report on Form 8-K filed on August 27, 2020.
3.1
Restated Certificate of Incorporation (filed as Exhibit 3.200.1 to Frontier’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2000).
3.2
Certificate of Amendment of Restated Certificate of Incorporation, effective July 31, 2008 (filed as Exhibit 3.1 to Frontier’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2008).*
3.3
Certificate of Amendment of Restated Certificate of Incorporation, effective June 28, 2010 (filed as Exhibit 99.2 to Frontier’s Current Report on Form 8-K filed July 1, 2010).
3.4
Certificate of Amendment of Restated Certificate of Incorporation, effective July 5, 2017 (filed as Exhibit 3(i) to Frontier’s Current Report on Form 8-K field on July 10, 2017).
3.5
By-laws, as amended May 7, 2019 (filed as Exhibit 3.1 to Frontier’s Current Report on Form 8-K filed on May 9, 2019).
3.6
Certificate of Designations of Series B Stock of Frontier, as filed with the Secretary of State of Delaware on July 1, 2019 (filed as Exhibit 3.1 to Frontiers Current Report on Form 8-K filed July 1, 2019).
4.1
Indenture of Securities, dated as of August 15, 1991, between Frontier and JPMorgan Chase Bank, N.A. (as successor to Chemical Bank), as Trustee (the “August 1991 Indenture”) (filed as Exhibit 4.100.1 to Frontier’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1991).
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
4.2
Fourth Supplemental Indenture to the August 1991 Indenture, dated October 1, 1994, between Frontier and JPMorgan Chase Bank, N.A. (as successor to Chemical Bank), as Trustee, with respect to 7.68% Debentures due 2034 (filed as Exhibit 4.100.7 to Frontier’s Current Report on Form 8-K filed on January 3, 1995).
4.3
Fifth Supplemental Indenture to the August 1991 Indenture, dated as of June 15, 1995, between Frontier and JPMorgan Chase Bank, N.A. (as successor to Chemical Bank), as Trustee, with respect to 7.45% Debentures due 2035 (filed as Exhibit 4.100.8 to Frontier’s Current Report on Form 8-K filed on March 29, 1996 (the “March 29, 1996 8-K”)).
4.4
Sixth Supplemental Indenture to the August 1991 Indenture, dated as of October 15, 1995, between Frontier and JPMorgan Chase Bank, N.A. (as successor to Chemical Bank), as Trustee, with respect to 7% Debentures due 2025 (filed as Exhibit 4.100.9 to the March 29, 1996 8-K).
4.5
Seventh Supplemental Indenture to the August 1991 Indenture, dated as of June 1, 1996, between Frontier and JPMorgan Chase Bank, N.A. (as successor to Chemical Bank), as Trustee, with respect to 6.8% Debentures due 2026 (filed as Exhibit 4.100.11 to Frontier’s Annual Report on Form 10-K for the year ended December 31, 1996 (the “1996 10-K”)).
4.6
Eighth Supplemental Indenture to the August 1991 Indenture, dated as of December 1, 1996, between Frontier and JPMorgan Chase Bank, N.A. (as successor to Chemical Bank), as Trustee, with respect to 7.05% Debentures due 2046 (filed as Exhibit 4.100.12 to the 1996 10-K).
4.7
Indenture, dated as of August 16, 2001, between Frontier and JPMorgan Chase Bank, N.A. (as successor to The Chase Manhattan Bank), as Trustee, with respect to 9% Senior Notes due 2031 (including the form of note attached thereto) (filed as Exhibit 4.1 of Frontier’s Current Report on Form 8-K filed on August 22, 2001).
4.8
Indenture, dated as of December 22, 2006, between Frontier and The Bank of New York, as Trustee, with respect to 7.875% Senior Notes due 2027 (including the form of note attached thereto) (filed as Exhibit 4.1 to Frontier’s Current Report on Form 8-K filed on December 29, 2006).
4.9
Indenture dated as of April 9, 2009, between Frontier and The Bank of New York Mellon, as Trustee (the “April 2009 Indenture”) (filed as Exhibit 4.1 to Frontier’s Current Report on Form 8-K filed on April 9, 2009 (the “April 9, 2009 8-K”)).
4.10
Third Supplemental Indenture to the April 2009 Indenture, dated as of May 22, 2012, between Frontier and The Bank of New York Mellon, as Trustee, with respect to 9.25% Senior Notes due 2021 (filed as Exhibit 4.1 to Frontier’s Current Report on Form 8-K filed on May 22, 2012 (the “May 22, 2012 8-K”)).*
4.11
Form of Senior Note due 2021 (filed as Exhibit 4.2 to the May 22, 2012 8-K).
4.12
Fourth Supplemental Indenture to the April 2009 Indenture, dated as of August 15, 2012, between Frontier and The Bank of New York Mellon, as Trustee, with respect to 7.125% Senior Notes due 2023 (the “Fourth Supplement to April 2010 Indenture”) (filed as Exhibit 4.1 to Frontier’s Current Report on Form 8-K filed on August 15, 2012 (the “August 15, 2012 8-K”)).
4.13
Form of Senior Note due 2023 (filed as Exhibit 4.2 to the August 15, 2012 8-K).
4.14
First Amendment to the Fourth Supplement to April 2009 Indenture, dated as of October 1, 2012, between Frontier and The Bank of New York Mellon, as Trustee, with respect to 7.125% Senior Notes due 2023 (filed as Exhibit 4.1 to Frontier’s Current Report on Form 8-K filed on October 1, 2012).
4.15
Fifth Supplemental Indenture to the April 2009 Indenture, dated as of April 10, 2013, between Frontier and The Bank of New York Mellon, as Trustee, with respect to 7.625% Senior Notes due 2024 (filed as Exhibit 4.1 to Frontier’s Current Report on Form 8-K filed on April 10, 2013 (the “April 10, 2013 8-K”)).
4.16
Form of Senior Note due 2024 (filed as Exhibit 4.2 to the April 10, 2013 8-K).
4.17
Sixth Supplemental Indenture to the April 2009 Indenture, dated as of September 17, 2014, between Frontier Communications Corporation and The Bank of New York Mellon, as Trustee (including the form of 6.250% Senior Notes due 2021) (filed as Exhibit 4.1 to Frontier’s Current Report on Form 8-K filed on September 17, 2014 (the “September 17, 2014 8-K”)).
4.18
Seventh Supplemental Indenture to the April 2009 Indenture, dated as of September 17, 2014, between Frontier Communications Corporation and The Bank of New York Mellon, as Trustee, with respect to 6.875% Senior Notes due 2025 (including the form of notes attached thereto) (filed as Exhibit 4.2 to the September 17, 2014 8-K).
4.19
Indenture, dated as of April 12, 2010 (the “April 2010 Indenture”), as amended, between New Communications Holdings Inc. (“Spinco”) and The Bank of New York Mellon, as Trustee (including the forms of notes attached thereto) (filed as Exhibit 4.22 to Spinco’s Registration Statement on Form 10 filed on April 20, 2010 (File No. 000-53950) (the “Spinco Form 10”)).
4.20
First Supplemental Indenture to the April 2010 Indenture, dated as of July 1, 2010, between Frontier and The Bank of New York Mellon, as Trustee, with respect to 8.5% Senior Notes due 2020, and 8.75% Senior Notes due 2022 (filed as Exhibit 4.2 to Frontier’s Registration Statement on Form S-4 filed on July 2, 2010 (File No. 333-167962)).
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
4.21
Indenture, dated as of January 1, 1994, between Frontier North Inc. (formerly GTE North Incorporated) and Bank of New York Mellon (as successor to The First National Bank of Chicago), as Trustee (the “Frontier North Indenture”) (filed as Exhibit 4.1 to Frontier’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2010).
4.22
First Supplemental Indenture to the Frontier North Indenture, dated as of May 1, 1996, between Frontier North Inc. (formerly GTE North Incorporated) and Bank of New York Mellon (as successor to The First National Bank of Chicago), as Trustee (filed as Exhibit 4.2 to Frontier’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2010).
4.23
Form of Debenture under the Frontier North Indenture (filed as Exhibit 4.24 to Frontier’s Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 10-K”)).
4.24
Base Indenture, dated as of September 25, 2015 (the “2015 Base Indenture”), between Frontier Communications Corporation and The Bank of New York Mellon, as trustee (filed as Exhibit 4.1 to Frontier’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2015 (the “September 30, 2015 10-Q”)).
4.25
First Supplemental Indenture to the 2015 Base Indenture, dated as of September 25, 2015, between Frontier Communications Corporation and The Bank of New York Mellon, as trustee, with respect to 8.875% Senior Notes due 2020 (including the forms of notes attached thereto) (filed as Exhibit 4.2 to the September 30, 2015 10-Q).
4.26
Second Supplemental Indenture to the 2015 Base Indenture, dated as of September 25, 2015, between Frontier Communications Corporation and The Bank of New York Mellon, as trustee, with respect to 10.500% Senior Notes due 2022 (including the forms of notes attached thereto) (filed as Exhibit 4.3 to the September 30, 2015 10-Q).
4.27
Third Supplemental Indenture to the 2015 Base Indenture, dated as of September 25, 2015, between Frontier Communications Corporation and The Bank of New York Mellon, as trustee, with respect to 11.000% Senior Notes due 2025 (including the forms of notes attached thereto) (filed as Exhibit 4.4 to the September 30, 2015 10-Q).
4.28
Fourth Supplemental Indenture, dated as of March 20, 2018, to the 2015 Base Indenture, dated as of September 25, 2015, between Frontier Communications Corporation and The Bank of New York Mellon, as trustee, with respect to the 8.875% Senior Notes due 2020 (filed as Exhibit 4.3 to the March 21, 2018 8-K).
4.29
Restated Indenture, dated as of March 25, 2008, between Southwestern Associated Telephone Company and First National Bank in Dallas, as trustee (filed as Exhibit 4.1 to Frontier’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2016 (the “June 30, 2016 10-Q”)).*
4.30
Indenture, dated as of December 1, 1993, between GTE California Incorporated and Bank of America National Trust and Savings Association, as trustee (the “California Indenture”) (filed as Exhibit 4.2 to the June 30, 2016 10-Q).
4.31
First Supplemental Indenture to the California Indenture dated as of April 15, 1996, between GTE California Incorporated and First Trust of California, National Association, as trustee (filed as Exhibit 4.3 to the June 30, 2016 10-Q).
4.32
Indenture, dated as of November 1, 1993, between GTE Florida Incorporated and Nations Bank of Georgia, National Association, as trustee (the “Florida Indenture”) (filed as Exhibit 4.4 to the June 30, 2016 10-Q).
4.33
First Supplemental Indenture to the Florida Indenture dated as of January 1, 1998, between GTE Florida Incorporated and the Bank of New York, as trustee (filed as Exhibit 4.5 to the June 30, 2016 10-Q).
4.34
Indenture, dated as of October 8, 2020, by and among Frontier Communication Corporation, the guarantors party thereto, the collateral grantor party thereto, and Wilmington Trust, National Association, a national banking association, as trustee and as collateral agent, with respect to the 5.875% First Lien Secured Notes due 2027 (filed as Exhibit 4.1 to Frontier’s Current Report on Form 8-K filed on October 14, 2020.)
4.35
Form of 5.875% First Lien Secured Note due 2027 (filed as Exhibit 4.2 to Frontier’s Current Report on Form 8-K filed on October 14, 2020.)
4.36
Indenture, dated as of November 25, 2020, by and among Frontier Communications Corporation, the guarantors party thereto, the collateral grantor party thereto, JPMorgan Chase Bank N.A., as collateral agent and Wilmington Trust, National Association, a national banking association, as trustee, with respect to the 5.000% First Lien Secured Notes due 2028 (filed as Exhibit 4.1 to Frontier’ Current Report on Form 8-K filed on December 2, 2020).
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
4.37
Form of 5.000% First Lien Secured Notes due 2028 (filed as Exhibit 4.3 to Frontier’ Current Report on Form 8-K filed on December 2, 2020).
4.38
Indenture, dated as of November 25, 2020, by and among Frontier Communications Corporation, the guarantors party thereto, the collateral grantor party thereto and Wilmington Trust, National Association, a national banking association, as trustee and as collateral agent, with respect to the 6.750% Second Lien Secured Notes due 2029 (filed as Exhibit 4.2 to Frontier’ Current Report on Form 8-K filed on December 2, 2020.)
4.39
Form of 6.750% Second Lien Secured Notes due 2029 (filed as Exhibit 4.4 to Frontier’ Current Report on Form 8-K filed on December 2, 2020.)
4.40
Section 382 Rights Agreement, dated as of July 1, 2019, between Frontier and Computershare Trust Company, N.A., as rights agent (filed as Exhibit 4.1 to Frontier’s Form 8-K filed July 1, 2019).
4.41
Description of Frontier’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.*
10.1
Restructuring Support Agreement, dated as of April 14, 2020, by and among the Company Parties and the Consenting Noteholders (filed as Exhibit 10.1 to Frontier’s Current Report on Form 8-K filed on April 15, 2020).
10.2
Senior Secured Superpriority Debtor-in-Possession Credit Agreement dated as of October 8, 2020, by and among Frontier Communications Corporation, Goldman Sachs Bank USA, as the administrative agent and collateral agent and the lenders party thereto (filed as Exhibit 10.1 to Frontier’s Current Report on Form 8-K filed on October 14, 2020.)
10.3
Credit Agreement dated as of October 8, 2020, by and among Frontier Communications Corporation, JPMorgan Chase Bank, N.A., as the administrative agent and collateral agent and the lenders party thereto (filed as Exhibit 10.2 to Frontier’s Current Report on Form 8-K filed on October 14, 2020.)
10.4
Incremental Facility Amendment No. 1, dated as of November 25, 2020, by and among Frontier Communications Corporation, the guarantors party thereto, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent and each lender party thereto (filed as Exhibit 10.1 to Frontier’s Current Report on Form 8-K filed on December 2, 2020.)
10.5
Employment Agreement, dated December 7, 2020, between Frontier and Nick Jeffery.*
10.6
Transition Agreement, dated February 18, 2021, between Frontier and Bernard L. Han (filed as Exhibit 10.1 to Frontier’s Current Report on Form 8-K filed on February 18, 2021.).
10.7
General Release Agreement, dated September 11, 2020, between Frontier and John Maduri (filed as Exhibit 10.3 to Frontier’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020).
10.8
General Release Agreement, dated September 22, 2020, between Frontier and Elisa Bannon-Jones (filed as Exhibit 10.4 to Frontier’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020).*
10.9
Tax Sharing Agreement, dated as of May 13, 2009, by and among Verizon Communications Inc. (“Verizon”), New Communications Holdings Inc. (“Spinco”) and Frontier, (filed as Exhibit 10.3 to Frontier’s Current Report on Form 8-K filed on May 15, 2009).*
10.10
Agreement Regarding Intellectual Property Matters, dated as of March 23, 2010, among Frontier, Spinco and Verizon (filed as Exhibit 10.12 to the Spinco Form 10).
10.11
Non-Employee Directors’ Deferred Fee Equity Plan, as amended and restated December 29, 2008 (filed as Exhibit 10.7 to Frontier’s Annual Report on Form 10-K for the year ended December 31, 2008 (the “2008 10-K)”).
10.12
Non-Employee Directors’ Equity Incentive Plan, as amended and restated December 29, 2008 (filed as Exhibit 10.8 to the 2008 10-K).
10.13
1996 Equity Incentive Plan, as amended and restated December 29, 2008 (filed as Exhibit 10.11 to the 2008 10-K).
10.14
2013 Frontier Bonus Plan (filed as Appendix A to Frontier’s Proxy Statement dated March 25, 2013 (the “2013 Proxy Statement”)).
10.15
Amended and Restated 2000 Equity Incentive Plan, as amended and restated December 29, 2008 (filed as Exhibit 10.13 to the 2008 10-K).
10.16
2009 Equity Incentive Plan (filed as Appendix A to Frontier’s Proxy Statement dated April 6, 2009).
10.17
2013 Equity Incentive Plan (filed as Appendix B to the 2013 Proxy Statement).*
10.18
2017 Equity Incentive Plan (filed as Annex A to Frontier’s Proxy Statement dated March 28, 2017).
10.19
Offer of Employment Letter, dated January 15, 2014, between Frontier and Mark D. Nielsen (filed as Exhibit 10.1 to the June 30, 2014 10-Q).
10.20
Offer of Employment Letter, dated June 9, 2014, between Frontier and Donald W. Daniels, Jr. (filed as Exhibit 10.3 to the June 30, 2014 10-Q).
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
10.21
Offer of Employment Letter, dated December 6, 2016, between Frontier and Kenneth Arndt. (filed as Exhibit 10.31 to the December 31, 2017 10-K).
10.22
Offer of Employment Letter, dated October 3, 2012, between Frontier and Steven Gable. (filed as Exhibit 10.32 to the December 31, 2017 10-K).
10.23
Form of Restricted Stock Agreement. (filed as Exhibit 10.33 to the December 31, 2017 10-K).
10.24
Form of Performance Share Agreement. (filed as Exhibit 10.34 to the December 31, 2017 10-K).
10.25
Form of Restricted Cash Award Agreement. (filed as Exhibit 10.35 to the December 31, 2017 10-K).
10.26
Form of Performance Cash Award Agreement. (filed as Exhibit 10.36 to the December 31, 2017 10-K).
10.27
Summary of Non-Employee Directors’ Compensation Arrangements Outside of Formal Plans (filed as Exhibit 10.29 to Frontier’s Annual Report on Form 10-K for the year ended December 31, 2016).
10.28
Form of Indemnification Agreement with Directors and Officers. (filed as Exhibit 10.38 to the December 31, 2017 10-K).
10.29
Bonus Letter, dated July 17, 2019, between Frontier and Mark D. Nielsen. (filed as Exhibit 10.33 to the December 31, 2019 10-K).
10.30
Form of Acceptance of Recapture Agreement relating to Frontier’s 2019 bonus plan and retention awards (filed as Exhibit 10.34 to Frontier’s Annual Report on Form 10-K for the year ended December 31, 2018).
10.31
Severance Agreement, dated August 2, 2019, between Frontier and Daniel J. McCarthy (filed as Exhibit 10.2 to Frontier’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019).
10.32
Offer of Employment Letter, dated June 7, 2019, between Frontier and Sheldon L. Bruha (filed as Exhibit 10.1 to Frontier’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019).
10.33
Form of Severance Agreement for Frontier’s Senior Leadership Team (filed as Exhibit 10.3 to Frontier’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019).
10.34
Employment Agreement between Frontier and Bernard L. Han (filed as Exhibit 10.1 to Frontier’s Current Report on Form 8-K filed on December 3, 2019).
10.36
Release Agreement between Frontier and Daniel J. McCarthy (filed as Exhibit 10.2 to Frontier’s Current Report on Form 8-K filed on December 3, 2019).
Subsidiaries of the Registrant.*
Consent of Independent Registered Public Accounting Firm.*
31.1
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 (the “1934 Act”).*
31.2
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the 1934 Act.*
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
The following materials from Frontier’s Annual Report on Form 10-K for the year ended December 31, 2020, formatted in iXBRL (inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Loss; (iv) the Consolidated Statements of Equity (Deficit); (v) the Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements.
Cover Page from Frontier’s Annual Report on Form 10-K for the year ended December 31, 2020, formatted in iXBRL and contained in Exhibit 101.
Exhibits 10.5 through 10.36 are management contracts or compensatory plans or arrangements.
* Filed here with.
‎
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)