Investors Given Black Eye on Frontier's New $1.5 Billion Loan

  • Recently sold loan said to trade below Thursday’s issue price
  • A drop in price on new debt is rare in frothy market

Loan investors helped Frontier Communications Corp. raise $1.5 billion this week as the struggling company tries to shore up its balance sheet. Some of them are already regretting it.

The telecom operator’s term loan was sold Thursday and is now trading below its issue level, an unusual occurrence in a hot market where strong demand often leads to a bump in market prices after the debt has been sold. The loan was being quoted below 99 cents on the dollar Friday, according to people who’ve seen the trades. That’s less than the already discounted price of 99.5 cents it was sold at.

Banks typically price a loan to enable trading that results in a pop on the debt price after the deal has been allocated. In this case, JPMorgan, which led the deal, seems to have miscalculated demand for the loan that has left some investors flustered, said the people, who asked not to be identified because they’re not authorized to discuss trades.

A spokeswoman for JPMorgan Chase & Co. declined to comment. A representative for Norwalk, Connecticut-based Frontier didn’t respond to a call seeking comment.

The company, which has almost $18 billion in debt and is facing declining revenue, has seen its credit rating cut by both Moody’s Investors Service and Fitch Ratings in the last week. The single B rating that it carries from all major ratings firms is a level consistent with a company that is considered to carry high credit risk.

The new loan pays interest of 3.75 percentage points more than lending benchmarks, according to people with knowledge of the matter.

Frontier has spent the past few years buying up landline telecommunications assets from Verizon Communications Inc. and AT&T Inc. to expand its revenue base. Though these deals helped double the size of the company, Frontier has been losing phone and internet subscribers in droves to cable competitors, which has pressured sales and its stock price. The shares are down more than 60 percent this year.

Its debt situation and the need for cash forced the company to cut its quarterly common dividend by 62 percent.

— With assistance by Eliza Ronalds-Hannon, and Paul Barbagallo

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE