Frontier Communications Corporation – Seeks $1.352bn Sale of Pacific Northwest Assets to WaveDivision Capital, LLC and Searchlight CapitalPartners, LLC

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April 15, 2020 – The Debtors filed a motion requesting an order approving (i) the $1.352bn private sale (the “Sale”) of Debtors’ businesses in Washington, Oregon, Idaho, and Montana (the “Pacific Northwest Assets”) and (ii) authorizing the Debtors to assume a May 2019 purchase agreement (the “Purchase Agreement”) with Northwest Fiber, LLC (the “Purchaser”) in respect of the Sale [Docket No. 22]. The Purchase Agreement is attached to the proposed order (in turn attached to the motion) as Exhibit 1. The Sale is supported by the noteholders party to the Debtors' restructuring support agreement (see Section 5.01(b)(vii) of the RSA attached to Docket No. 3]

As implied by the Purchase Agreement date, the Sale had been in the works for some time; with marketing efforts beginning as early as 2017 and the gap between the execution of the Purchase Agreement and the present largely attributed to the need to obtain regulatory approvals (now obtained). The Purchaser is an entity formed by WaveDivision Capital, LLC (WDC) in partnership with Searchlight CapitalPartners, LLC. WDC is led by Steve Weed, founder and former CEO of Wave Broadband which was sold for $2.4bn to TPG Capital-backed RCN/Grande  in January 2018.

Is the Purchaser even still interested? Apparently so. On March 17th, the Purchaser, which plans to rebrand the acquired assets as Ziply Fiber (Chairman: Steve Weed) issued a press release as to its intentions and reaffirmed the purchase price in addition to committing to a $100.0mn investment in the rebranded assets. The Debtors and the Purchaser have until May 28th to close the deal in advance of the expiration of the Purchaser's existing financing commitments.

Marketing Process

The motion states, “In July 2017, the Debtors and their advisors began evaluating strategic and capital structure alternatives to address the Debtors’ burdensome balance sheet. As part of this process, the Debtors considered a number of strategic asset divestitures across multiple regions in which the Debtors operate. After consultation with their advisors, the Debtors decided that, under the right circumstances, including finding a purchaser with the financial and operational capabilities to successfully consummate a sale transaction and move through the regulatory approval process, a sale of certain assets would enhance liquidity and enable the Debtors to focus on other more valuable initiatives and markets, and, ultimately, increase shareholder value.

Starting in January 2018, the Debtors discussed potential non-core asset sales with multiple counterparties, signing non-disclosure agreements with sixteen parties and receiving non-binding letters of intent from six of those parties. In September 2018, the Purchaser, headed by broadband entrepreneur Steve Weed, who founded and served as CEO of Wave Broadband until its sale for $2.5 billion in 2018, engaged with the Debtors and Evercore regarding the acquisition of certain non-core assets in the Pacific Northwest. Specifically, the Purchaser expressed interest in acquiring the Debtors’ operations and associated assets in Washington, Oregon, Idaho, and Montana. As of March 31, 2019, the Debtors’ operations in these states served more than 350,000 customers and accounted for approximately $272 million of adjusted EBITDA on a trailing-twelve-months basis. Eventually, on January 7, 2019, after extensive diligence efforts by the Parties, the Debtors received a non-binding letter of intent from the Purchaser for the Pacific Northwest Assets.

After several months of negotiations of definitive documentation, including constant and extensive diligence efforts, on May 28, 2019, Frontier, Frontier’s wholly owned subsidiary Frontier Communications ILEC Holdings LLC, and the Purchaser executed the Purchase Agreement, which provides for a purchase price of more than $1.352 billion, subject to customary adjustments. As is customary in the telecommunications industry, the Sale is subject to receipt of certain necessary regulatory approvals, which have all been obtained as a result of the Parties’ substantial devotion of time and resources, and certain other pre-closing conditions, which the Parties are diligently working to complete. As a result of the lengthy process and delay between execution of the Purchase Agreement and consummation of the Sale, the Debtors filed these chapter 11 cases prior to consummation of the Sale, in order to effectuate the terms of a comprehensive restructuring, the terms of which are embodied in the Restructuring Support Agreement. The Debtors now seek authority to assume the Purchase Agreement pursuant to section 365 of the Bankruptcy Code and to consummate the Sale free and clear of all liens, claims, encumbrances, and interests pursuant to section 363 of the Bankruptcy Code. In connection with approval of the Sale, the Debtors also seek authority, pursuant to section 365 of the Bankruptcy Code, for the assumption of all executory contracts and unexpired leases held by the Transferred Subsidiaries as contemplated by the Purchase Agreement.

The Sale of the Pacific Northwest Assets is a key step towards effectuating the Debtors’ restructuring and future business plan by reallocating resources to ease the transition to the Debtors providing enhanced broadband service. Consummation of the Sale will also result in immediate and meaningful value to the Debtors and their estates, in part due to the $1.352 billion cash infusion (subject to customary purchase price adjustments and escrow arrangements).

Further, over 75% of the Holders of Senior Notes Claims are supportive of the Sale. Indeed, under the terms of the Restructuring Support Agreement, as outlined in Exhibit 1 attached thereto, the Debtors were required to file this Motion as soon as reasonably practicable. The Holders’ support is indicative of the Sale’s benefit to the Debtors’ estates. In light of the foregoing and the extended negotiation process, the Debtors believe that proceeding with the Sale is in the best interest of the Debtors, their estates, and all parties-in-interest.”

Key Terms of the Purchase Agreement

  • Seller: Frontier Communications Corporation
  • Intermediate Holdco: Frontier Communications ILEC Holdings LLC
  • Purchaser: Northwest Fiber, LLC
  • Guarantors (concerning Purchaser obligations): (i) WaveDivision Capital VII, LLC; (ii) Searchlight Capital II, L.P. and Searchlight Capital II PV, L.P.; (iii) Port-aux-Choix Private Investments Inc.; (iv) IMCPE 2019 Inc.; and (v) CPP Investment Board Private Holdings (4) Inc.
  • Purchase Price: The aggregate purchase price for the Transferred Equity Interests shall be $1,352,000,000 in cash (the “Purchase Price”), payable as set forth in § 1.03, including subject to satisfaction of certain conditions precedent, and subject to adjustment as provided in § 1.04, including for cash, indebtedness, working capital as compared to an agreed target, and certain pension and retiree medical liabilities, and subject to customary escrow arrangements, including a $26.5mn indemnity escrow to serve as a source of recovery for Purchaser’s indemnification claims described below. The indemnity escrow will be released 12 months following the Closing (amounts may be retained in escrow subject to then-pending claims).
  • Termination: The Purchase Agreement includes customary termination provisions for both Seller and Purchaser. Under certain circumstances (e.g., if the transaction does not close as a result of Purchaser’s debt financing becoming unavailable), Purchaser is required to pay a termination fee of $86.125mn in cash to Seller.

Subject to certain exceptions, either party may terminate the Purchase Agreement if the Closing has not occurred on or prior to May 28, 2020.

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