(Bloomberg) -- Frontier Communications Corp. and its bondholders are back at the negotiating table after the debt-laden telephone service company’s asset auction failed to generate an acceptable price, people with knowledge of the matter said.

The company, which serves small towns and midsize cities, received multiple bids for landline assets in Florida this month but decided not to sell because none of the offers were high enough, said the people, who asked not to be identified because the matter is private.

Struggling under a debt load that’s more than 23 times the size of its market capitalization, Frontier has been considering a sale of landline assets in California, Florida and Texas since at least February. The company planned to dispose of the assets, which it acquired from Verizon Communications Inc. in a $10.5 billion deal just two years ago, in parts rather than as a single package.

Frontier, based in Norwalk, Connecticut, was expected to use proceeds of the sale to pay down some of its $17.8 billion of debt. Instead, it’s resumed talks with bondholders over how best to tackle its looming debt problem, the people said.

Brigid Smith, a Frontier spokeswoman, declined to comment.

‘We’re Open’

Chief Executive Officer Dan McCarthy, speaking during a May 1 earnings call, said he had no comment on reports of the asset sale. “We’re open to considering strategic transactions that recognize the substantial value of our assets and allow us to reduce leverage,” he said during the call.

McCarthy told investors during a May 15 presentation to expect “continuous quarterly improvements” in revenue gains and cost reduction.

While turning the Florida landlines into cash would have helped strengthen Frontier’s balance sheet, selling them cheaply -- out of desperation -- would have weakened the value of the remaining assets, said Lindsay Gibbons, an analyst with Creditsights Inc.

“The Florida sale wasn’t going to delever the company meaningfully, but it would have given them a little more flexibility to handle their 2021 and 2022 maturities,” Gibbons said. “The problem is that they have a weak negotiating position. If they sold Florida for less than what they paid, it wouldn’t look good and it puts a watermark on the other asset values.”

The Verizon package included 3.7 million voice connections, 2.2 million broadband connections, and 1.2 million FiOS video connections, Frontier said at the time of the acquisition. Frontier’s customer base and margins have been shrinking as rural residents continue to abandon home landlines in favor of service from wireless carriers.

--With assistance from Eliza Ronalds-Hannon.

To contact the reporters on this story: Nabila Ahmed in New York at nahmed54@bloomberg.net;Sridhar Natarajan in New York at snatarajan15@bloomberg.net;Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editors responsible for this story: Elizabeth Fournier at efournier5@bloomberg.net, ;Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, ;Nick Turner at nturner7@bloomberg.net, Michael Hytha, Matthew Monks

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