Frontier Puts Investing in Network to Dividends Before Debt Cuts

Frontier Communications Corp., the least indebted broadband and telecommunications company among peers, is forgoing debt reduction in favor of investing in infrastructure and maintaining its dividend to shareholders.

The communications services provider has enough cash to repay the $402 million of debt that matures through 2015, according to Chief Financial Officer John Jureller. The Stamford, Connecticut-based company will only pay down additional debt beyond near-term maturities after it spends free cash flow on improving its fiber-to-home broadband network and paying its annual 40 cent dividend, Jureller said.

“We are very comfortable in our liquidity profile and servicing our debt. That is not a concern to us,” Jureller said in a telephone interview on Aug. 8. “Our priority today is to appropriately fund our operations to keep the network and customer acquisition and retention networks strong.”

Frontier will use cash to repay at maturity $200 million of 8.25 percent bonds due May 2014, as well as $105.1 million of 6.625 percent notes due March 2015 and $96.9 million of 7.875 percent bonds due April 2015

The company is expected to pay about $400 million in a cash dividend from its estimated $760.6 million in free cash flow in 2013, analyst estimates compiled by Bloomberg show. That would leave it with more than $300 million in cash to, in order of priority, reinvest in the company, take further shareholder action and potentially reduce debt, Jureller said.

Frontier has a long-term target of reducing its leverage, or the ratio of debt to earnings before interest, taxes, depreciation and amortization, to 2.5 from 3.65 times, Jureller said. That’s the lowest ratio among peers with revenue between $2 billion and $10 billion, Bloomberg data show. The company is rated Ba2 by Moody’s Investors Service and BB- by Standard & Poor’s, the data show.

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