Fitch Ratings has assigned a negative rating watch to Frontier Communications’ final debt offering necessary to close its $10.54 billion acquisition of Verizon assets in three states.
The negative watch means there’s an increased likelihood of a downgrade by early next year.
In February, Fitch put Frontier’s long-term debt on rating watch.
Fitch this week assigned the watch to a recent $6.6 billion offering of senior unsecured notes, which are rated “BB.”
The offering will provide the remaining financing needed to close the Verizon transaction, which includes wireline assets in California, Texas and Florida.
The deal follows Frontier’s $2 billion acquisition of AT&T’s Connecticut wireline operations late last year. That deal increased Frontier’s financial leverage by about 16 percent, Fitch said. The ratings issuer believes Frontier is managing competitive headwinds in Connecticut, as evidenced by second-quarter growth in its business and residential revenue. But it said Frontier’s challenge over time will be to retain and attract customers.
Fitch said it could downgrade Frontier and its debt in the coming months if the company is unable to keep its financial leverage to certain levels. That will depend on how Frontier manages synergy savings from the Verizon deal and pressures on its earnings, Fitch said.
The deal is slated to close in early 2016.
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