Is 15% Yield To Maturity Worth The Risk For Frontier Communications 2025 Bonds?

We are more than two weeks removed from Frontier Communications (FTR) first quarter earnings results. The company announced it had beat earnings and revenue estimates, which helped shares get a boost. With the company deferring some of its debt maturities with a successful debt tender offer, fixed income investors may begin to find yield and greater safety in Frontier bonds that mature beyond the next few years. A bond that matures in September 2025 for example, is priced at 82.6 cents on the dollar, offers an 11% coupon, and a yield to maturity near 15%.

Source: FINRA
Despite beating estimates, Frontier’s revenue declined by $157 million, or more than 6% from the first quarter of 2017. Thanks to a steeper decline in the company’s operating expenses, Frontier was able to increase its operating profit from $317 million to $366 million. The combination of operating profit and other income was enough to cover the company’s interest expense in the first quarter, an improvement from the prior year’s first quarter.

Source: 10-Q
Frontier’s balance sheet saw a few changes in the first quarter. While investors may be quick to note a decline of approximately $500 million in long term debt, this was mainly driven by a $400 million increase in debt maturing within a year. The company’s currently assets dropped by more than $100 million, driven mainly by a decline in cash.

Source: 10-Q
Frontier’s cash flow fell... Read more

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