FairPoint files plan to slash debt, regroup
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By DANIEL BARLOW Vermont Press Bureau - Published: February 9, 2010
MONTPELIER – FairPoint Communications filed a business reorganization plan Monday, nearly five months after the troubled telecommunications company filed for bankruptcy.
The North Carolina company, which owns landlines and Internet services in Vermont, New Hampshire and Maine, will now be owned by a coalition of its creditors if it emerges from bankruptcy protection under the plan, which was submitted to a New York State court Monday morning.
Under the plan, which relies on some concessions from its unionized workers, almost two-thirds of the company's $2.7 billion in debt would be erased and more than 47 million new shares of stock would be issued to secured creditors.
In a telephone conference call with reporters Monday morning, FairPoint CEO David Hauser called the announcement a "milestone in the debt restructuring process" and expressed hope that the financially troubled company would emerge from bankruptcy in late 2010.
"It is very certain that FairPoint will emerge as a stronger and more vibrant company after this process," said Hauser, echoing comments he made in October 2009 when the company filed for bankruptcy.
FairPoint purchased Verizon's 1.6 million landlines and 230,000 Internet customers in March 2008 for $2.4 billion, much of the money borrowed by the small phone company, which, before the sale, had only about 330,000 customers across the country.
But things quickly took a wrong turn for FairPoint. After switching from Verizon's computer system to its own at the end of January 2009, the company experienced dramatic technical failures, including sending out incorrect bills and failing to respond swiftly to customer complaints.
Soon, the company was weighted down in the billions of dollars they borrowed to finance the deal. In October 2009, after months of speculation, the company filed for Chapter 11 bankruptcy protection. The reorganization plan unveiled Monday had been delayed at least twice.
Hauser said the delay was to ensure that as many major creditors as possible were on board with the plan. Delaying the court filing until this week "will allow us to avoid costly litigation further in the process and speed up our timeline," Hauser said in the morning conference call.
The company said in court filings that $2.1 billion in allowed pre-petition credit agreement claims could expect a recovery of about 87.9 cents on the dollar in cash and new shares.
The largest class of unsecured creditors will receive stock and other instruments, representing an 8-percent stake in the company, said Cummings. The recovery represents about 17 cents on the dollar.
Another group of unsecured creditors, those owed $10,000 or less, will be paid 100 percent of their claims, according to the plan. Those claims total $3.3 million.
The reorganization of FairPoint is planned to go forward without any layoffs of Vermont workers, according to Mike Spillane, the business manager of IBEW Local 2326, one of the two major unions representing workers for the company.
Spillane said the unions have long held that FairPoint's troubles had nothing to do with the quality of its workforce and therefore the debt restructuring should not fall on their backs.
"We firmly believe this will give us the opportunity to bring FairPoint back to being a strong and viable company that can give Vermonters the services they want," Spillane said.
He said the company and the unions agreed to extend their current contracts – they still need to ratified by the rank and file union members – with some concessions from workers.
These concessions include delaying a scheduled 3 percent wage increase until 2013, suspending a pension buyout program and restructuring the company's corporate profit-sharing strategy. The unions and FairPoint also agreed to form a joint committee that would look at capturing an additional $25 million in savings over the next several years.
"I really think this can work," Spillane said. "We have ideas right now about how to save this company money."
FairPoint also announced Monday that it had reached deals with the states of Vermont and New Hampshire over its commitments to build-out high-speed Internet networks into underserved, rural parts of the states.
The Vermont Department of Public Service put the company on notice last summer when it called on FairPoint to explain why its certificate of public good – essentially its right to operate here in the state – not be taken away.
The settlement deal with the Department – which still needs to be voted on by the Vermont Public Service Board – confirms FairPoint's commitments to building out broadband, although it delays some fines the company could face until early in 2011. Those fines would be waived if the company meets some key criteria.
If the settlement agreement is approved by the Board, the certificate of public good case would be closed.
Daniel.Barlow@timesargus.com.
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