Updated Q&A on Frontier Bankruptcy
Updated Q&A on Frontier Bankruptcy
April 16, 2020
This updated FAQ focuses on basic issues of concern to CWA members. CWA
leadership is evaluating a range of issues as they arise in this process which
could potentially impact our members. CWA will continue to provide update s
as information becomes available.
Please see our earlier FAQ document on bankruptcy below for more
information.
Question. Is Frontier going out of business?
Answer. No. Frontier is filing for Chapter 11 bankruptcy, which is a
reorganization proceeding that gives companies an opportunity
to restructure its operations and finances. In Chapter 11
bankruptcies, companies generally seek a seamless transition in
operations upon a filing so the public does not recognize a break
or difference in service.
Question. What does Frontier plan to achieve in bankruptcy?
Answer. Frontier’s plan is to eliminate a substantial portion of its deb t,
freeing up funds to invest and grow the business. The
company’s bankruptcy plan (called a “Restructuring Support
Agreement” that has been signed by a majority of their
bondholders) will do the following:
1. Reduce the current $17.5bn in outstanding debt by $11bn;
2. Compensate the bondholders who own that $11bn in debt
through a combination of stock in the post-bankruptcy
company and a $750 million new bonds;
3. Cancel 100% of current company stock and commit 100%
of post bankruptcy stock to bondholders;
4. Develop a plan which will enable the company to improve
its operations and invest in fiber and other critical
technologies.
This plan must be approved by the bankruptcy court and a vote
of various classes of creditors before it can take effect. The
bankruptcy exit plan will also be reviewed by state regulators .
The company predicts the process could take into early 2021 to
complete.
Question. Will my pay and benefits be affected by the company’s
bankruptcy filing?
Answer. Frontier has communicated to its employees that pay and
benefits will continue as normal during the bankruptcy process
and has received approval from the bankruptcy court to
continue to run the business in the normal course. We do no t
expect employees to see any interruption in their normal pay
and benefits during the bankruptcy process.
Question. Will my protections under the collective bargaining agreement
be affected by the company’s bankruptcy filing?
Answer. Frontier has not engaged CWA to renegotiate our contracts and
the company’s plan for bankruptcy does not specify that the
company is seeking any specific changes to our contracts .
Frontier representatives have reaffirmed their intent to maintain
our contracts to the bankruptcy court.
If the company did seek to make changes to our contracts, they
would first be required to negotiate with CWA. If the bargaining
process did not result in an agreement, the company could at
that point ask the bankruptcy court for the authority to reject
our CBAs and impose the company’s final offer. In that case,
CWA would have the opportunity to argue against rejection and
present evidence in a trial in the bankruptcy court .
Question. Will my pension be affected by the company’s bankruptcy filing?
Answer. The ongoing accrual of pension benefits is determined by the
collective bargaining agreement and therefore subject to the
same protections and process as described above. Frontier’s
bankruptcy plan does not specify that the company is seeking
changes to our pension benefits.
Because Frontier’s pension plan is not currently fully-funded,
federal law prohibits the plan from paying lump sum
distributions to employees who retire while the company is in
bankruptcy. However, Frontier has recently amended its
pension plan to allow any retirees that were required to select
an annuity as a result of the bankruptcy to go back and select a
lump sum distribution once the company has emerged from
bankruptcy. There are similar provisions governing death
benefits.
Question. What role will CWA have in Frontier’s bankruptcy?
Answer. CWA has petitioned the bankruptcy court for a seat on the
“Unsecured Creditors Committee” (UCC).
This committee is appointed by the United States Trustee, a
government official, to represent the interests of creditors who
are owed money but do not have a lien or mortgage on the
company’s property to secure their debt.
As a group, this committee monitors the bankruptcy
proceedings, appears in court to present the views of the
committee, negotiates over a plan of reorganization, and can
conduct investigations into the Company’s actions .
FAQs on Possible Frontier Bankruptcy
February 16, 2020
Media outlets are reporting that Frontier Communications may file for
bankruptcy as early as March 2020. While we don’t know anything other than
what is being reported in the news media, CWA has put together a brief
question and answer piece in an attempt to explain the bankruptcy process
and to ease your concerns as CWA represented employees of Frontier. CWA
and its bankruptcy attorneys, Cohen, Weiss and Simon LLP (“CWS”), are
closely monitoring this situation and will advise you as necessary when
circumstances warrant.
Brief Background on Bankruptcy Proceedings
Question. What is a bankruptcy?
A bankruptcy is a legal proceeding with a special set of rules
governing a company’s rights and obligations (as well as the rights
and obligations of creditors and other parties) after the company
files a bankruptcy petition.
The laws governing a bankruptcy are contained in the U.S.
Bankruptcy Code. Bankruptcy proceedings are supervised by the
U.S. Bankruptcy Courts. The parties impacted by the bankruptcy
filing (for example, Frontier and CWA members) must follow the
rules of the bankruptcy court.
Question. What are the differences between a Chapter 11 and Chapter 7
bankruptcy?
Answer. Chapter 11 filing is a reorganization proceeding that is intended to
give a company an opportunity to restructure its operations and
finances and emerge from bankruptcy pursuant to a plan of
reorganization. In Chapter 11 bankruptcies, companies tend to
seek a seamless transition in operations upon a filing so the public
does not recognize a break or difference in service. In a Chapter 11
bankruptcy proceeding, a company may attempt to reorganize its
operations in a “stand-alone” reorganization or to sell some or most
of its assets as a going concern, often referred to as a “Section 363”
or “363” sale. A company that has filed a Chapter 11 petition is
often referred to as the “debtor” or “debtor-in-possession” (“DIP”)
A Chapter 7 filing is a liquidation proceeding where a company
terminates operations. A trustee rather than management has
ultimate responsibility for administering the company and its
liquidation.
Question. What are the rights a company obtains when it files for Chapter 11?
Answer. The “debtor,” obtains the right to ask the bankruptcy court for the
right to sell assets and “reject” otherwise binding contracts.
Immediately upon a bankruptcy filing, there is a stop of most
creditors’ efforts, known as an “automatic stay,” to collect on their
debts and most lawsuits. Debts become what are called
bankruptcy “claims.” This process gives the Company a chance to
save its cash and restructure or sell assets in an organized way
with some “breathing room” from creditors seeking to collect debts
and pursue lawsuits.
Question. What are exceptions to the automatic stay?
Answer. Exceptions to an automatic stay include certain “First Day
Orders,” (meaning orders presented at the first court appearance
after filing for bankruptcy) which may allow the company to pay
various prepetition bankruptcy “claims” as they come due instead
of waiting for the end of the case. There is usually a First Day
Wage and Benefit Order authorizing the payment of most
employee-related obligations earned before the bankruptcy filing.
While most litigation is placed on hold, grievance and arbitration
proceedings under a CBA may go forward, although any monetary
damages (for example, back pay) are usually dealt with in the
bankruptcy process, and most government regulatory proceedings
(like the Labor Board) go forward.
Question. What happens in the Chapter 11 bankruptcy process?
Answer. When a company files a petition for Chapter 11, the automatic stay
takes effect and the company immediately comes under the
supervision of the Bankruptcy Court. The Company must file
motions and seek the approval of the Bankruptcy Court to take
any actions that would be different from their “ordinary course of
business.” CWA would have the right to weigh in on any motions
filed by Frontier
The company ultimately negotiates a Plan of Reorganization
(“POR”) with creditors and other involved parties in the
bankruptcy. The POR is a legal document that provides how the
company will pay creditors and how it will be governed following
emergence from bankruptcy.
Question. What happens to a union contract during bankruptcy?
Answer. There is a complex process under Section 1113 of the Bankruptcy
Code that would govern any motion “to reject” a labor contract,
and to the extent it ever becomes relevant we will report further on
Section 1113.
Under bankruptcy, the company can ask the bankruptcy court for
the authority to reject otherwise binding contracts, including
collectively bargained agreements, but must engage in a period of
bargaining when seeking to reject a labor contract. The union
would have an opportunity to argue against rejection and present
evidence in a trial in the bankruptcy court.
In the case where the CBA is rejected, a company’s last bargaining
offer would be implemented as terms and conditions of
employment, but generally, unions would then have the right to
strike. The company would ultimately be required to bargain over
the terms of a new contract. In this case, since CWA has multiple
CBAs with Frontier, the company could chose to seek rejection of
individual contracts or all of the contracts with CWA. Thus,
Frontier could chose to seek to reject just a particular local
contract but we are not aware of such approach in past cases
because in the context of multiple contracts with locals of the same
international, usually each contract has the same type of provision
that the company wants to change across the board. If considering
seeking rejection of a labor contract, a company usually wants
some type of coordinated bargaining with the international
involved.
Companies in bankruptcy often have good reason to avoid reopening
bargaining. Companies under Chapter 11 typically seek to
maintain operations and avoid disruptions during bankruptcy
while they secure funding and seek an exit out of bankruptcy.
Question. How is the Plan of Reorganization approved?
Answer. The company’s management has the exclusive right to file a POR
for the first 120 days after filing the bankruptcy petition, although
the bankruptcy court may shorten or extend that time period.
Before a POR may take effect, it must be approved by the
bankruptcy court and be approved by a vote of various classes of
creditors.
Question. How does a company fund its operations while in bankruptcy?
Answer. A debtor often seeks new financing, called Debtor In Possession
(“DIP”) Financing, to pay for the operating needs of the company.
Question. What is the role of the bankruptcy judge?
Answer. The judge oversees the bankruptcy legal process and must review
the debtor’s decisions, including any requests for confirming a
POR, rejecting contracts, or selling substantial assets. The judge
is required to follow and implement the bankruptcy law.
Bankruptcy Judges do not manage or administer the business of
the Company in bankruptcy. They only interpret the bankruptcy
law in relation to the motions brought before them.
Question. Who else is involved in a company’s bankruptcy filing?
Answer. The “unsecured creditors” (creditors who are owed money but do
not have a lien or mortgage on the Company’s property to secure
the debt) usually have a formal role in a Chapter 11 bankruptcy.
An official body called the Unsecured Creditors’ Committee
(“Committee”), usually consisting of the seven largest unsecured
creditors, is appointed by the United States Trustee, a government
official, to represent the interests of unsecured creditors. As a
group, the Committee monitors the bankruptcy proceedings,
appears in court to present the views of the Committee, negotiates
over a plan of reorganization, and can conduct investigate the
Company’s actions.
In the event Frontier does file for bankruptcy, CWA will attempt to
be appointed a member of the Unsecured Creditors Committee
appointed in the Frontier case. CWA and its professionals —
including our bankruptcy attorneys, CWS —would be monitoring
all of the court proceedings.
Questions Related to Bargaining/Pay/Pensions/Benefits
Question. What happens if Frontier declares bankruptcy before or during
bargaining?
Answer. There is no change to the rules under which unions and employers
negotiate new agreements when the employer is in bankruptcy,
unless and until the Company invokes an attempt to reject the
labor contract.
Question. Will CWA and Frontier bargain expiring contracts during the
bankruptcy proceeding?
Answer. Yes.
Question. How will an employee’s pay and benefits be impacted by the
Bankruptcy?
Answer. Assuming Frontier files first day motions to continue to run the
business in the normal course, all employees should expect to
receive their usual pay and benefits during the bankruptcy
proceedings. The CBAs remain in effect unless and until the Court
approves any changes to them.
Question. Does Frontier’s bankruptcy filing terminate the pension plan?
Answer. No. While underfunded pension plans sometimes terminate during
bankruptcy proceedings, a company’s bankruptcy filing by itself
does not terminate a pension plan.
Question. How would bankruptcy affect my pension plan?
Benefits Already Earned: Generally, all earned benefits under a
traditional, defined-benefit pension are protected under federal law
and must be paid in full.
However, an employer can apply for a distressed termination under
the Pension Benefit Guarantee Corporation (“PBGC”) if:
1. The pension plan does not contain enough assets to pay
benefits, and
2. The employer proves that it cannot remain in business
while maintaining operation of the plan.
Under a distressed termination, the PBGC takes over the
administration of the plan and pays all benefits up to a maximum
guaranteed amount. If a labor contract requires contributions to a
defined benefit pension plan, the Company would also have to seek
relief from the labor contract in order to terminate a pension plan.
It’s important to remember that Federal law requires that money
contributed towards financing a pension plan be kept in a trust
separate from other business assets. These trust assets may not be
used to pay off other debts in the bankruptcy process.
PBGC 2020 Maximum Monthly Guarantees for Single Employer
Plans Under federal law, lump sum payments generally are not available
when a company files for bankruptcy and the plan is not 100%
funded. It is rare for a plan to be 100% funded and the most recent
disclosures from the company indicate that the Frontier plan is
funded at 92.91 percent. Pension plans that are terminated and
then administered by the PBGC, likewise will not offer lump sum
distributions to retirees. PBGC plans do offer joint-and-survivor
annuity options.
Age at Retirement
Monthly Guaranteed Amount
(Straight-Life Annuity)
55 $2,615.63
60 $3,778.13
65 $5,812.50
70 $9,648.75
It has been our experience that these PBGC guaranteed amounts
cover earned benefits for most CWA members, depending on their
age at retirement.
Future Benefits: Filing for bankruptcy does not necessarily mean
a change to your future benefits under the pension plan.
Under Chapter 11 bankruptcy, a company may or may not seek
changes to the pension plan (or any other employee benefit plan)
during the bankruptcy. Employers are required to negotiate with
represented units for any changes to active benefit plans, either
under the normal rules of bargaining or the rules governing
attempts to reject a collective bargaining agreement.
Question. What is the Pension Benefit Guaranty Corporation (“PBGC”)?
Answer. The PBGC is a federal agency created by the Employee Retirement
Income Security Act of 1974 (ERISA) to protect pension benefits in
private sector defined benefit plans — the kind that typically pay a
set monthly amount at retirement. The PBGC receives no taxpayer
dollars. Instead, its operations are financed by insurance
premiums, investment income and assets and recoveries from
failed single-employer plans.
Question. What happens when a pension plan is terminated and transferred
to PBGC?
Answer. When an underfunded pension plan is terminated and transferred
to PBGC, it will notify plan participants and beneficiaries and
provide information about their plan and about PBGC. While we do
not know for sure, we have no basis to conclude that the Frontier
pension plan will be terminated during the bankruptcy.
If the pension plan is insured by the PBGC and it is terminated
without sufficient money to pay all benefits, PBGC’s insurance
program will pay you the benefit provided by your pension plan up
to the limits set by law and subject to any other legal requirement,
as set forth above.
If you have not yet retired, your payments will begin when you
become eligible and apply for pension benefits.
Question. Are Frontier’s pension plans insured by PBGC?
Answer. Yes.
Frontier may have an option to amend the pension plan after
bankruptcy to permit individuals to reapply for their lump sums.
CWA is continuing to analyze all options that may be available.
Question. Will a plan termination affect annuity payments?
Answer. No. The termination of the pension plans does not affect purchased
annuities. The annuities will continue to be paid by the insurance
company who is responsible for those benefits.
Question. Will retired employees continue to receive their monthly pension?
Answer. As of today, the union pension plan remains intact and, therefore,
retired employees will continue to receive monthly annuity
payments.
Question. What will happen to our other benefits, including insurance?
Answer. At this time, all terms of the CBA remain in effect. Thus, to the
extent any insurance plan or other benefit is a benefit set forth in
the CBA, the benefit remains in effect.
If it files for Chapter 11 bankruptcy, Frontier does have the ability
to request changes to the CBA, but until and unless it makes any
such request to the bankruptcy court, and the request is granted,
there will be no changes to any benefits.
Question. Should you file a claim for monetary damages if you believe you
are owed funds?
Answer. At this time there is no need to file a claim for monetary damages
against Frontier. If Frontier does indeed file for bankruptcy, the
bankruptcy court will set a deadline for filing claims, called a “bar
date,” and instructions and probably forms will be distributed. We
expect that the CWA will file claims on its behalf as its members,
including grievances, but will provide more information if there is a
bankruptcy and when a bar date is set.
Question. Whom should participants call with additional questions about
their pension benefits?
Answer. The PBGC’s customer contact number is (800) 400-7242.
Customer Service is open between 8am and 7pm Monday – Friday,
except holidays.
There may also be a number at the pension plan.
As you can see, CWA and its bankruptcy attorneys and other professionals
with bankruptcy experience and expertise are monitoring all developments
related to Frontier and will advise you of future developments.