Bankruptcy firm will advise state on FairPoint case
Toolbox
By DANIEL BARLOW VERMONT PRESS BUREAU - Published: July 1, 2009
MONTPELIER – The state of Vermont hired a law firm with experience in corporate bankruptcy cases this week as FairPoint Communications, one of its largest telephone and Internet companies, flounders financially.
The Vermont Department of Public Service retained Burlington law firm Paul Frank and Collins just days after FairPoint Communications, in financial filings with the federal government, suggested it could file for bankruptcy this year.
FairPoint, a North Carolina company that purchased Verizon Communications' telephone landlines and Internet services in Vermont, Maine and New Hampshire for $2.3 billion, has experienced severe service problems in the last six months.
Public Service Commissioner David O'Brien said Tuesday that the department needed experts to guide it on bankruptcy proceedings for corporate telecommunications companies as it keeps a close eye on FairPoint and its finances.
"If this is going to be a bankruptcy case, we want the advice from legal counsel with experience," O'Brien said.
Last week, FairPoint told the U.S. Securities and Exchange Commission that it hoped to delay interest payments on more than $500 million in debt – otherwise it may seek to reorganize its business structure, including filing for bankruptcy protection.
A FairPoint spokesperson had no comment Tuesday on the state's hiring of a law firm. It was the second time in less than a week that a corporate spokesperson declined to comment on the company's future.
But in a letter to The Times Argus published today, David Hauser, the incoming CEO of FairPoint, admits that the company's "reputation has been damaged during the recent transition."
"We are taking a number of proactive steps to stabilize our financial situation and in all scenarios, let me reassure you we would continue to operate providing products and services to our customers," Hauser wrote.
The financial markets took note of FairPoint's request to delay debt payments. Moody's Investors downgraded its stock again Tuesday – putting it "eight notches into junk status," according to the financial investment firm. Friday, the company's stock sold for 89 cents a share; by mid-afternoon Tuesday it had dropped to 56 cents.
Verizon and FairPoint Communications both gave state officials assurances in 2007, when the sale was proposed, that the company emerging from the deal would be financially stable and have the ability to carry out the responsibilities of a 21st century telecommunications company.
But, according to testimony filed with the Vermont Public Service Board, staff members at the department had some serious concerns – concerns that turned out to be near-prophetic.
When asked on May 24, 2007, if the FairPoint that emerged from the Verizon deal would be able to do its job in the three states, Christopher Campbell, then the director of telecommunications for the department, had strong doubts.
"This transaction could negatively impact service quality and customer service if FairPoint is unprepared to improve on the level of Verizon's service quality, which the department believed is inadequate, or by disruption caused by the systems transition necessary for this transaction."
If FairPoint does file for bankruptcy, it would likely be the kind known as Chapter 11, which allows a business to reorganize and restructure as it continues its operations, O'Brien said. He said the company could actually emerge as a stronger entity from that process.
"I don't foresee any disruption of services if they file for bankruptcy," he said.
Tuesday was also the deadline for FairPoint to submit reports to regulators in the three New England states detailing the company's efforts to strengthen customer service. O'Brien said those reports will be released July 8, but he doesn't expect FairPoint to have reached a level of service the department would consider "business as usual."
"From the calls we are still getting on our consumer hotline and the anecdotal stories I've heard, it's clear that FairPoint has made some changes, but they are nowhere near where I would like to be," he said.
O'Brien said CEO Hauser is expected to tour the states the company serves over the next several weeks.
"I look forward to him visiting our state in the near future," he said.
Contact Daniel Barlow at Daniel.Barlow@timesargus.com.
19