Frontier Communications Faces Downgrade In Credit Ratings

Regional wireline telecom operator Frontier Communications Corp. (NYSE:T) recently suffered a setback as Moody’s Investors Service downgraded the corporate family rating (CFR) of the company to B2 from B1 based on the company's persistently weak operating results. The rating agency also downgraded Frontier Communications’ probability of default rating (PDR) to B2-PD from B1-PD, its secured rating to B1 from Ba3 and its unsecured rating to B2 from B1.

Frontier's speculative grade liquidity (SGL) remains unaffected at SGL-2. The negative outlook for the company assigned by Moody’s also remains unchanged.

Frontier Communications continues to be significantly challenged by slow economic recovery in its service territories and competes with the loss of legacy fixed telephony business to wireless and other offerings. The persistent decline in access lines continues to tighten local service revenues, which accounts for most of Frontier Communications’ overall revenues.

Management expects to continue experiencing declines in wireless backhaul revenues in 2017. This is because a number of its carrier partners might migrate to Ethernet solutions at lower price points, while some customers may switch to competitors. Thus, deteriorating wireless backhaul business is expected to remain a headwind for Frontier Communications. Also, the company is experiencing a decline in its residential voice segment. Management expects this downward trend to persist in the near future.

As of Mar 31, 2017, the number of residential customers decreased 3.2% sequentially to 4,736,000. However, the average monthly residential revenue per customer was $80.62, up 0.4% sequentially. Residential customer monthly churn was 2.37%, up 13.9% sequentially. Business customers sequentially decreased 3.6% to 484,000. Frontier Communications had 4,164,000 high-speed broadband subscribers (down 2.5% sequentially) and 1,065,000 video customers (down 7% sequentially).

Frontier Communications faces intense competition from large telecom operators like AT&T Inc. (NYSE:T) and Comcast Corp. (NASDAQ:CMCSA) . Last year, the company acquired wireline assets from Verizon Communications Inc. (NYSE:VZ) in California, Florida and Texas. However, management has yet to derive expected synergies from those acquisitions. Frontier Communications currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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