Testimony of Carlin Adrianopoli A.20-05-010 (Frontier Restructuring) August 4, 2020
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Testimony of Carlin Adrianopoli A.20-05-010 (Frontier Restructuring) August 4, 2020 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Application of Frontier Communications Corporation, Frontier California Inc. (U 1002 C), Citizens Telecommunications Company of A.20-05-010 California Inc. (U 1024 C), Frontier (Filed May 22, 2020) Communications of the Southwest Inc. (U 1026 C), Frontier Communications Online and Long Distance Inc. (U 7167 C), Frontier Communications of America, Inc. (U 5429 C) For Determination That Corporate Restructuring Is Exempt From or Compliant With Public Utilities Code Section 854. DIRECT TESTIMONY OF CARLIN ADRIANOPOLI On Behalf Of Frontier Communications Corporation Frontier California Inc. (U 1002 C) Citizens Telecommunications Company of California Inc. (U 1024 C) Frontier Communications of the Southwest Inc. (U 1026 C) Frontier Communications Online and Long Distance Inc. (U 7167 C) Frontier Communications of America, Inc. (U 5429 C) 1297791.1 Testimony of Carlin Adrianopoli A.20-05-010 (Frontier Restructuring) August 4, 2020 DIRECT TESTIMONY OF CARLIN ADRIANOPOLI Table of Contents I. INTRODUCTION ...................................................................................................1 II. NEGOTIATIONS WITH CREDITORS LEADING TO THE CHAPTER 11 FILING ....................................................................................................................5 III. OPERATIVE DOCUMENTS FILED IN SUPPORT OF THE CHAPTER 11 PROCESS ..............................................................................................................10 IV. SUMMARY ...........................................................................................................22 1297791.1 Testimony of Carlin Adrianopoli A.20-05-010 (Frontier Restructuring) August 4, 2020 Page 1 of 23 DIRECT TESTIMONY OF CARLIN ADRIANOPOLI 1 I. INTRODUCTION 2 Q. Please state your name, business address and occupation. 3 A. My name is Carlin Adrianopoli. My business address is 401 Merritt 7, Norwalk, 4 Connecticut 06851. I am the Executive Vice President of Strategic Planning of 5 Frontier Communications Corporation (“Frontier”). I also concurrently advise 6 Frontier in my capacity as a Senior Managing Director of FTI Consulting, Inc. 7 (“FTI”). I assumed my role as Executive Vice President of Strategic Planning on 8 April 14, 2020, and I have been assisting Frontier in preparing for and navigating 9 the bankruptcy process under chapter 11 (“Chapter 11”) of title 11 of the United 10 States Code (the “Bankruptcy Code”). 11 Q. What is FTI’s relationship to Frontier? 12 A. Since June 2019, FTI has served as restructuring advisor to Frontier. FTI’s 13 professionals work closely with clients on a daily basis to identify complex business 14 challenges and develop strategies to overcome these challenges in a diverse number 15 of industries and business areas, including restructuring. FTI’s vast network of 16 professionals, which includes, but is not limited to, certified insolvency and 17 restructuring advisors, certified public accountants, former executive officers, and 18 certified turnaround professionals, enables FTI to guide clients through a wide 19 variety of complex business challenges. I lead the Midwest region for FTI’s 20 Corporate Finance and Restructuring segment. 1297791.1 Testimony of Carlin Adrianopoli A.20-05-010 (Frontier Restructuring) August 4, 2020 Page 2 of 23 1 Q. Please describe your professional experience and educational background. 2 A. I have more than 20 years of experience serving as a financial advisor and providing 3 interim management and performance improvement services to corporations, 4 various creditor classes, equity owners, and directors of distressed companies. I 5 have provided restructuring services on large and high-profile matters in 6 proceedings under Chapter 11 and out-of-court workouts. I hold a Master of 7 Business Administration with an emphasis in corporate finance from the University 8 of Notre Dame and a B.S.B.A. in accountancy from John Carroll University. I am 9 a Certified Insolvency and Restructuring Advisor, a Certified Turnaround 10 Professional, and a Certified Public Accountant. 11 Q. What is the purpose of your testimony? 12 A. On July 1, 2020, Frontier and its California local exchange and long distance 13 subsidiaries, Frontier California Inc. (U 1002 C), Citizens Telecommunications 14 Company of California Inc. (U 1024 C), Frontier Communications of the Southwest 15 Inc. (U 1026 C), Frontier Communications Online and Long Distance Inc. (U 7167 16 C), and Frontier Communications of America, Inc. (U 5429 C) (collectively, the 17 “California Operating Subsidiaries,” and, together with Frontier, the “Applicants”) 18 filed an application (“Application”) before the Public Utilities Commission of the 19 State of California (the “Commission”) for approval of a new holding company 20 structure as set forth in Applicants’ pre-arranged Joint Plan of Reorganization of 21 Frontier Communications Corporation and its Debtor Affiliates Pursuant to 22 Chapter 11 of the Bankruptcy Code (the “Plan,” and the transactions contemplated 1297791.1 Testimony of Carlin Adrianopoli A.20-05-010 (Frontier Restructuring) August 4, 2020 Page 3 of 23 1 thereunder, the “Restructuring”). I am providing this testimony in support of the 2 Application. 3 Q. In addition to your testimony in this proceeding, have you submitted other 4 relevant documents in the Chapter 11 proceeding on behalf of Frontier? 5 A. Yes. I submitted a declaration (the “Declaration”) to assist the Bankruptcy Court 6 and parties-in-interest in understanding the circumstances that led to the Chapter 11 7 cases and in support of the Chapter 11 petitions. That same Declaration was 8 submitted as Exhibit D to the Application that initiated this proceeding before the 9 Commission. 10 Q. What topics are covered in your testimony? 11 A. My testimony informs the Commission concerning two general subjects related to 12 Frontier’s filing for Chapter 11 protection on April 14, 2020 (the “Chapter 11 13 Petition Date”). First, I explain how Frontier analyzed its financial and operational 14 circumstances leading up to the Chapter 11 filing, and how those deliberations 15 provided the foundation for Frontier’s balance sheet restructuring that is being 16 effectuated through the Chapter 11 process. Second, I provide an overview of the 17 Chapter 11 process that is designed to facilitate Frontier’s emergence from Chapter 18 11 with a substantially deleveraged balance sheet and enhanced financial flexibility 19 resulting from an over $10 billion reduction in Frontier’s debt. In connection with 20 this discussion, I also describe the key documents related to Frontier’s 21 Restructuring, including the Restructuring Support Agreement (“RSA”), the Plan, 22 and the Disclosure Statement. The RSA and the Plan were attached to the 1297791.1 Testimony of Carlin Adrianopoli A.20-05-010 (Frontier Restructuring) August 4, 2020 Page 4 of 23 1 Application as Exhibits B and C, respectively. The Disclosure Statement approved 2 by the Bankruptcy Court, including the Disclosure Statement exhibits, are provided 3 with this testimony as Appendix 1.1 4 Q. Are other witnesses providing testimony in this proceeding on behalf of 5 Frontier? 6 A. Yes. Frontier’s Chief Legal Officer and Chief Transaction Officer, Mark D. 7 Nielsen, is providing testimony concerning four principal subjects: (i) Frontier’s 8 history, current operations, and overall market position; (ii) the reasons why an 9 expedited approach to this proceeding is appropriate under Public Utilities Code 10 Section 853(b); (iii) the application of each of the public interest standards and 11 factors in Public Utilities Code Section 854 to Frontier’s change of ownership and 12 financial restructuring; and (iv) the importance of maintaining a focused review of 13 the Restructuring that addresses the transaction at issue, rather than expanding the 14 review into other areas of general regulatory compliance, to revisit or side-step 15 other proceedings or otherwise attempt to achieve long-term policy objectives that 16 are not germane to this review. 1 The Plan was attached as Exhibit C to the Application. The Third Amended Joint Plan of Reorganization is included as an exhibit to Disclosure Statement in Appendix A. 1297791.1 Testimony of Carlin Adrianopoli A.20-05-010 (Frontier Restructuring) August 4, 2020 Page 5 of 23 1 II. NEGOTIATIONS WITH CREDITORS LEADING TO THE CHAPTER 11 2 FILING 3 Q. Please summarize the events leading to the Chapter 11 filings by Frontier and 4 its subsidiaries. 5 A. After months of extensive analysis in 2018 and 2019, Frontier concluded that debt- 6 oriented transactions, such as refinancings, designed to extend near-term maturities 7 alone, would not sufficiently improve Frontier’s capital structure and that executing 8 one or more of these types of transaction(s) would at best delay maturities without 9 comprehensively addressing the challenges inherent in its capital structure. 10 Accordingly, in the fall of 2019, Frontier embarked on a proactive engagement with 11 one of its principal creditor groups, which holds a substantial portion of Frontier’s 12 senior unsecured notes. After months of negotiations, on April 14, 2020, Frontier 13 and all of its direct and indirect subsidiaries commenced a Chapter 11 proceeding 14 after entering into the RSA with groups of Frontier’s senior unsecured noteholders 15 holding more than seventy-five percent of Frontier’s