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FRONTIER COMMUNICATIONS: 1st Lien Lenders Want Rejection of Plan

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Frontier Communications Corporation and its direct and indirect subsidiaries, submitted a Disclosure Statement relating to the Second Amended Joint Plan of Reorganization.

Class 6 First Lien Notes Claims are unimpaired. The class is not entitled to vote on (deemed to accept) the Plan. Despite the unimpaired status of Holders of First Lien Notes, the Debtors reached an agreement with counsel to the ad hoc committee of certain unaffiliated holders of the Debtors’ outstanding first lien debt (the “First Lien Committee”) regarding the conditional soliciting of votes from Holders of First Lien Notes Claims and Second Lien Notes Claims (the “Conditional Solicitation of Certain Unimpaired Classes”). In the event that the Bankruptcy Court later determines, or the Debtors agree, that First Lien Notes Claims are Impaired under the Plan, Holders of such Claims shall be considered Voting Parties, retroactive to the entry of the Disclosure Statement Order. In the event of such determination or agreement, such claims will be considered Impaired Claims, retroactive to the entry of the Disclosure Statement Order, and such votes shall be valid for all purposes under the Plan for all purposes, including but not limited to the voting determination of Class 6 with respect to acceptance or rejection of the Plan.

Class 7 Second Lien Notes Claims are unimpaired. The class is not entitled to vote (deemed to accept). Despite the unimpaired status of Holders of Second Lien Notes, the Debtors reached an agreement with counsel to Wilmington Savings Fund Society, FSB regarding the conditional solicitation of certain unimpaired classes to avoid confirmation delays in the event that the Bankruptcy Court later determines, or the Debtors agree at a future date, the second lien notes claims are impaired under the Plan. In the event of such determination or agreement, the claims will be considered Impaired Claims, retroactive to the entry of the Disclosure Statement Order, and such votes shall be valid for all purposes under the Plan for all purposes, including but not limited to the voting determination of Class 7 with respect to acceptance or rejection of the Plan.

The Debtors believe First Lien Notes Claims and Second Lien Notes Claims are unimpaired. As a precaution to avoid Confirmation delays in the event that the Bankruptcy Court later determines, or the Debtors agree at a future date, that such Claims are impaired under the Plan, the Debtors are participating in the Conditional Solicitation of Certain Unimpaired Classes. For the avoidance of doubt, the Conditional Solicitation of Certain Unimpaired Classes will not modify or otherwise alter the Unimpaired status of such Claims.

If the Bankruptcy Court determines, or the Debtors agree at a future date, that such Claims are Impaired, the following Holders of First Lien Notes Claims and/or Second Lien Notes Claims will be Releasing Parties: (a) all Holders of such Claims that vote to reject the Plan and do not opt out of or otherwise object to the Third-Party Release in the Plan; and (b) all Holders of such Claims that abstain from voting on the Plan and do not opt out of or otherwise object to the Third-Party Release in the Plan. Absent such determination or agreement, First Lien Notes Claims and Second Lien Notes Claims are Unimpaired and not entitled to vote, and Holders of such Claims shall not be Releasing Parties.

Statement of the First Lien Committee

The following represents the position of the First Lien Committee with regard to the confirmability of the Plan. The Debtors disagree with much of the First Lien Committee’s assessments of the confirmability of the Plan, but have included it here verbatim at the First Lien Committee’s request.

STATEMENT OF THE FIRST LIEN COMMITTEE REGARDING DEBTORS’ JOINT PLAN OF REORGANIZATION

The ad hoc committee of certain unaffiliated lenders (the “First Lien Committee”) that hold, either directly or through funds or accounts managed by them, the outstanding First Lien Debt Obligations of Frontier Communications Corporation (“Frontier”) and certain of its subsidiaries and affiliates (collectively, the “Debtors”) does not support the Debtors’ Plan.

As explained in the Objection of the First Lien Committee to the Debtors’ Disclosure Statement Motion [Docket No. 555], the First Lien Committee contends that the Plan is unconfirmable for at least the following reasons:

Plan Treatment. The Plan proposes to either refinance or reinstate the Term Loan Claims and the First Lien Notes Claims. The First Lien Committee contends that neither treatment option is permissible under the Bankruptcy Code.

According to the First Lien Committee, reinstatement is impermissible because the Plan does not comply with Sections 1123(d) or 1124 of the Bankruptcy Code. The First Lien Committee contends that the Plan would substantially alter the legal, equitable, and contractual rights of the Term Loan Lenders and the First Lien Noteholders and results in several breaches of the First Lien Debt Documents. These alleged breaches include the following:

(1) The Plan does not provide for the payment of postpetition interest on the First Lien Debt Obligations calculated at the default rate specified in the First Lien Debt Documents. The First Lien Committee contends that such failure is a violation of their contractual and statutory entitlement to postpetition interest at the post-default contract rate, and precludes reinstatement of the First Lien Debt Obligations.

(2) The Plan contemplates nearly $950 million of Incremental Payments and Surplus Cash payments to the holders of Senior Notes Claims, which the First Lien Committee contends is an impermissible diversion of proceeds from the Debtors’ PNW Sale. The First Lien Committee further contends that the Debtors’ use of the PNW Sale proceeds violates their contractual and statutory rights and precludes reinstatement of the First Lien Debt Obligations.

(3) The Plan proposes to pay the Revolving Credit Claims in full in cash on the Effective Date, while reinstating the Term Loan Claims. The First Lien Committee contends that this produces a preferential pay-down of the Revolving Credit Lenders that contravenes the pro rata payment provisions in the Credit Agreement governing both sets of Claims. The First Lien Committee contends that this also precludes reinstatement.

(4) The Plan does not incorporate the turnover and payment subordination mechanisms set forth in the Intercreditor Agreement by and among the Debtors, the First Lien Parties and the Second Lien Parties. The First Lien Committee contends that the Plan must enforce the provisions of the Intercreditor Agreement that require payment in full of the First Lien Debt Obligations, and that the Debtors’ failure to incorporate such provisions in the Plan constitutes a breach of the First Lien Debt Documents and precludes reinstatement.

(5) The First Lien Committee contends that the Noteholder Groups’ selection of the members of the new board of the Reorganized Debtors will trigger a change in control under the First Lien Debt Documents, thereby causing an Event of Default thereunder that would preclude reinstatement.

The First Lien Committee asserts that the Debtors’ alternative Plan treatment for the Term Loan Claims and the First Lien Notes Claims, payment in full in cash on the Effective Date, does not comply with the Bankruptcy Code because the Plan prohibits the allowance of fees and expenses contractually owed to the Term Loan Lenders and the First Lien Noteholders, including default interest, fees, and any make-whole premium.

Impairment. The First Lien Committee contends that the Debtors are required to solicit votes from the Holders of Claims in Class 5 (Term Loan Claims) and Class 6 (First Lien Notes Claims) because these Claims are impaired under the Plan for many of the same reasons that reinstatement is prohibited. In addition, the First Lien Committee contends that holders of Term Loan Claims and First Lien Notes Claims are impaired because the Plan would impose third-party releases on such holders unless they affirmatively object or opt out of such releases. The First Lien Committee asserts that the Plan cannot be confirmed because the Debtors failed to solicit all classes of impaired creditors.

Classification. The First Lien Committee contends that the Plan separately classifies the Revolving Credit Claims and the Term Loan Claims in violation of Section 1122 of the Bankruptcy Code. The First Lien Committee further contends that both the Revolving Credit Claims and the Term Loan Claims should be classified in the same Class because both Claims are governed by the Credit Agreement and share the same collateral and guarantee package.

Non-Estate Professional Fees. The Plan provides for payment in full on the Confirmation Date of the Noteholder Groups’ outstanding professional fees. The First Lien Committee asserts that there is no legal basis for the Debtors to pay the professional fees of unsecured creditors under the Plan.

The First Lien Committee opposes confirmation of the Plan and intends to oppose confirmation of the Plan. As a result, the Plan may not be confirmed because of these infirmities. The First Lien Committee
recommends that all entities entitled to vote on the Plan submit a timely ballot voting to reject the Plan.

A full-text copy of the Disclosure Statement dated June 29, 2020, is available at https://tinyurl.com/ybfo74jg from PacerMonitor.com at no charge.

Counsel to the Debtors and Debtors in Possession:

Stephen E. Hessler, P.C.
Mark McKane, P.C. (admitted pro hac vice)
Patrick Venter
KIRKLAND & ELLIS LLP
KIRKLAND & ELLIS INTERNATIONAL LLP
601 Lexington Avenue
New York, New York 10022
Telephone: (212) 446-4800
Facsimile: (212) 446-4900

– and –

Chad J. Husnick, P.C.
Benjamin M. Rhode (admitted pro hac vice)
KIRKLAND & ELLIS LLP
KIRKLAND & ELLIS INTERNATIONAL LLP
300 North LaSalle Street
Chicago, Illinois 60654
Telephone: (312) 862-2000
Facsimile: (312) 862-2200

About Frontier Communications

Frontier Communications Corporation (NASDAQ: FTR) offers a variety of services to residential and business customers over its fiber-optic and copper networks in 29 states, including video, high-speed internet, advanced voice, and Frontier Secure digital protection solutions.

Frontier Communications Corporation and 103 related entities sought Chapter 11 protection (Bankr. S.D.N.Y. Lead Case No. 20-22476) on April 14, 2020, to seek approval of a plan that would cut debt by $10 billion. Frontier announced it had entered into a Restructuring Support Agreement (RSA) with bondholders representing more than 75% of its $11 billion outstanding unsecured bonds.

Judge Robert D. Drain oversees the cases.

The Debtors tapped Kirkland & Ellis LLP as legal counsel; Evercore as financial advisor; and FTI Consulting, Inc., as restructuring advisor. Prime Clerk is the claims agent, maintaining the page http://www.frontierrestructuring.com/ and https://cases.primeclerk.com/ftr.

The U.S. Trustee for Region 2 appointed a committee to represent unsecured creditors in Debtors’ Chapter 11 cases.

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