Frontier Communications (FTR) Debt Deal Supports Dividend - Nomura

March 28, 2013 1:26 PM EDT
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Price: $3.54 --0%

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Nomura Securities commented on Frontier Communications (NASDAQ: FTR) Thursday following the offering of senior notes, saying the debt transaction further supports the one thing that matters most to investors - the dividend.

Today, Frontier priced an upsized registered offering of $750.0 million aggregate principal amount of 7.625% Senior Notes due 2024. The size of the offering was increased from the previously announced $500 million. Frontier intends to use the net proceeds of the offering, together with cash on hand, to finance cash tender offers announced and also upsized today to purchase up to $899.8 million aggregate principal amount of outstanding 6.625% Senior Notes due 2015, 7.875% Senior Notes due 2015 and 8.250% Senior Notes due 2017.

"We view these actions as demonstrating the company's ability to fund its dividend and handle debt maturities with free cash flow in the next several years," Nomura analyst Mike McCormack said.

"We estimate that Frontier will generate $3.5bn of free cash flow in 2014-2017," he continued. "This exceeds the dividend obligation and debt maturity total of $3.15bn, allowing the company to de-lever, invest in the business, and grow its cash balance over that timeframe. We estimate Frontier will maintain approximately a 50% dividend payout ratio for the next five years, equating to a 60% payout on a fully taxed basis."

McCormack continues to prefer Frontier Communications over peers Windstream (NYSE: WIN) and CenturyLink (NYSE: CTL) on valuation and superior dividend coverage. He maintained a Buy rating and price target of $5.50.

For an analyst ratings summary and ratings history on Frontier Communications click here. For more ratings news on Frontier Communications click here.

Shares of Frontier Communications closed at $3.82 yesterday.

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