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FairPoint Communications Inc., which runs the majority of the land-line communications in northern New England, has filed for Chapter 11 bankruptcy protection and has agreed to a plan with its lenders to reduce its debt by $1.7 billion. In return, the creditors will receive nearly total control of the telecommunications company.
Last year, FairPoint (NYSE: FRP) bought Verizon Communications Inc.’s land-line business in Maine, New Hampshire and Vermont for $2.4 billion. But since transferring customers in that market to its own network in February, FairPoint has faced persistent difficulties with billing and installations, among other consumer complaints.
FairPoint CEO David Hauser said that customers would see no effects from the Chapter 11 filing, and business would run as usual.
In connection with the restructuring plan, FairPoint has received commitments for a $75 million debtor-in-possession revolving credit facility to ensure liquidity during the company’s restructuring. The plan also provides for a new, $1 billion secured term loan. The Charlotte, N.C.-based company says it has $46 million in cash on hand.
The restructuring plan seeks to reduce FairPoint’s debt to $1 billion from the current $2.7 billion. It also would reduce the company’s annual interest costs to $65 million from more than $200 million.
About $1.1 billion of debt under the credit facility will be converted into equity, transferring 98 percent or more of the equity ownership of the company to the secured lenders.
In August, FairPoint was accused of faking the tests to determine its readiness to take over the Verizon lines, and at the time the Vermont Public Service Board asked the company to respond to the allegations. FairPoint did respond to Vermont’s concerns, and the PSB has decided it was satisfied with the answers and would not pursue the matter further.
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