FairPoint files for bankruptcy
PORTLAND, Maine (AP) – FairPoint Communications Inc. filed for Chapter 11 bankruptcy protection Monday, barely 18 months after becoming northern New England's dominant telecommunications company, fulfilling critics' predictions that the company wasn't up to the task.
The company said it voluntarily filed for bankruptcy after agreeing on a deal with key lenders that will help lower its debt by about 62 percent.
FairPoint, based in Charlotte, N.C., owns and operates phone companies in 18 states with a total of 1.65 million lines. Its largest holdings are in Maine, New Hampshire and Vermont, where it bought Verizon Communications Inc.'s landlines and Internet network for $2.3 billion in 2008.
FairPoint has been struggling under a large debt and falling revenues, as well as customer service, billing and other problems since switching over to its own computer systems in northern New England nine months ago.
The bankruptcy filing was widely anticipated as the company has negotiated with banks and bondholders to restructure its debt.
The restructuring deal with lenders holding more than half of its outstanding secured debt will allow the company to reduce its debt from $2.7 billion to $1 billion, CEO David Hauser told The Associated Press.
"What that will do is cause a significant decrease in costs to the company because interest expenses will drop a lot," Hauser said.
The plan is subject to approval by the U.S. Bankruptcy Court in the Southern District of New York.
Hauser said the bankruptcy filing will not affect the company's day-to-day operations or its efforts to expand its high-speed Internet network in northern New England.
"From a customer point of view, this is a nonevent," he said.
Last week, the governors of Maine, New Hampshire and Vermont said they wanted assurances from FairPoint that any debt restructuring by the company wouldn't further erode customer service.
Maine Public Advocate Richard Davies, who represents consumers, said he needs more details to determine how the bankruptcy filing will affect customers.
"The creditors seem to be taken care of, but that doesn't mean the consumers' interests have been protected," Davies said.
Besides negotiating with banks and bondholders to restructure its debt, FairPoint has been asking its nearly 3,000 union employees in the three-state region for pay cuts and other concessions.
Union leaders, meanwhile, have placed the blame squarely on FairPoint, saying its problems were caused by "crushing debt and an organizational chaos," not by its workforce.
"We recognized from the start that the business plan was flawed, the debt was too high and they were in over their heads in rolling into their new computer systems," said Pete McLaughlin of the International Brotherhood of Electrical Workers.
When FairPoint first proposed buying Verizon's landline and Internet assets in northern New England, opponents said FairPoint was too small to take on such a large network. In making the purchase, FairPoint grew six-fold overnight.
Two events are largely to blame for the company's unraveling, said Davies.
After the purchase was approved by regulators in Maine, New Hampshire and Vermont, but before the acquisition was completed on April 1, 2008, FairPoint was blindsided by the Wall Street financial crisis, he said. To finance the deal, the company planned to issue bonds paying 8.125 percent but instead was forced to issue bonds that paid 13.125 percent – causing its interest payments to soar.
When the company switched from Verizon's computer systems to its own network last winter, it was plagued with customer service, order-fulfillment and billing problems. Those problems caused costs to go up and its customer base to go down.
"Two factors that are major contributors to this weren't known to regulators at the time the deal was approved," he said. "Hindsight is a wonderful thing and if we'd known all these things back then I'm sure there would've been a different decision."
Meredith Hatfield, New Hampshire's consumer advocate, said the challenge now will be advocating for customers' interests and getting FairPoint to follow through on its commitments.
"Obviously ratepayers and customers of FairPoint potentially have a lot to lose," she said.
FairPoint said it has about $46 million of cash on hand and expects to continue to generate positive operating cash flow. It said it received commitments for a $75 million debtor-in-possession revolving credit facility.
Alfred Giammarino, chief financial officer and executive vice president, said the company is pleased with the terms of the agreement with its lenders.
– Associated Press writer Norma Love contributed to this report from Concord, N.H.