uploads/2018/06/Telecom-Frontier-1Q18-Long-Term-Debt-1.png

What Prompted Frontier to Suspend Its Dividends?

By

Updated

Frontier suspends dividends

Earlier this year, Frontier Communications (FTR) announced that it was terminating its dividend payments. The termination of its regular cash dividend payments will save the company ~$250 million annually, which could be used to pay down its outstanding debt.

The company now only pays a preferred dividend to its shareholders. In the first quarter, Frontier spent $53 million on preferred dividends.

Frontier’s debt burden

Frontier is struggling with high debt levels, as we can see in the chart above. The telecom company’s leverage ratio at the end of the first quarter was 4.8:1, which was more than its leverage ratio of 4.6:1 at the end of the fourth quarter of 2017. These debt levels are high.

The company’s long-term debt at the end of the first quarter was $16.5 billion compared to $17.0 billion at the end of the fourth quarter of 2017. Its interest paid was $593 million in the first quarter, up from $577 million in the first quarter of 2017. However, the company’s cash on hand was only $201 million at the end of the first quarter. As a result, the company is making efforts to reduce its debt levels and improve its balance sheet position.

Frontier’s scale

On June 19, Frontier had a market cap of ~$0.6 billion. In the US (SPY) wireline space, this metric was ~$19.9 billion for CenturyLink (CTL) and ~$0.3 billion for Windstream (WIN).

More From Market Realist