Reorganizing plan cuts FairPoint debt
FairPoint Communications would cut its debt load by almost two-thirds and largely maintain its schedule to upgrade and expand high-speed Internet service throughout New Hampshire under a new proposal designed to get the company out of bankruptcy.
It also could avoid roughly $6 million in state penalties for service issues, as long as it meets pre-set goals this year.
The bankruptcy reorganization plan, filed Monday in federal bankruptcy court in New York City, calls for FairPoint’s debt to be reduced from nearly $2.8 billion to about $1 billion.
Under the plan, existing shareholders will get nothing for their stock, while secured creditors – banks and other lending institutions – will get about 88 percent of the $2.1 billion they are owed, mainly in stock. Unsecured creditors – which includes the company that built FairPoint’s faulty computer system, and New Hampshire Electric Cooperative – would get roughly 17 percent of the $635 million they’re owed, also mostly in stock.
The plan must still be approved by a number of parties, including a bankruptcy court judge, and state and federal regulators.
It must also be approved by the rank and file of the two unions that represent FairPoint employees – International Brotherhood of Electrical Workers and the Communications Workers of America – since the plan would put off raises that are slated to go into effect in August and set up a system to establish “productivity measures” to cut costs by millions of dollars. The restructuring plan would also extend the current contract by a year, to 2014.
One complication is that the plan announced Monday has only been OK’d by regulators in New Hampshire and Vermont. FairPoint is still talking with regulators in Maine, the third state where the company bought Verizon’s landlines.
FairPoint CEO David Hauser, in a conference call Monday morning, said the company hoped that it would reach an agreement with that state soon.
“When FairPoint emerges, it will do so with a capital structure that contains significantly less debt,” Hauser said. “FairPoint’s financial position and ongoing liquidity will be significantly strengthened.”
FairPoint bought Verizon’s landline service in Northern New England, including fiber-optic service in Nashua and parts of southern New Hampshire, in 2008 and took it over at the start of 2009.
The purchase of 1.6 million lines increased the size of the company, which owns a number of relatively small phone systems in a dozen other states, fivefold.
A myriad of issues cropped up as soon as Verizon handed off operations in January 2009, mostly involving the software and systems that control billing, customer service and new orders.
They led to a flood of complaints, which generated hearings in front of state regulators, fines, and even a threat that Vermont might pull FairPoint’s license to operate as a phone company.
At the same time FairPoint struggled financially, both because the billing problems reduced its income and because the financial crash raised the cost of the heavy debt load it took on to buy the system.
In October, the company filed for bankruptcy. Monday’s announcement of a plan to get out of the financial mess was twice delayed while negotiations continued.
It was negotiated by members of the attorney general’s office, staff of the PUC and the state’s bankruptcy counsel,
The bankruptcy plan includes some changes from the deal reached when New Hampshire regulators agreed to allow the Verizon purchase.
The requirement that a new board of directors will appoint a “regulatory sub-committee” to keep track of compliance with the 2008 merger order and that FairPoint cannot pay stock dividends unless it is in compliance with the plan.
The agreement protects the authority of the PUC to regulate FairPoint in New Hampshire.
The company faces roughly $6 million in penalties because it did not meet certain “service quality index” measures established when the New Hampshire Public Utilities Commission allowed the Verizon sale. They cover such items as how long people have to wait when they call customer service.
Under the new agreement, those penalties will be waived as long as the company meets its metrics this year.
This may not be as much of a concession by New Hampshire as it seems, since it’s not clear where the penalties would fall when the bankruptcy court doles out payments – it’s possible New Hampshire wouldn’t be able to collect them, anyway.
FairPoint slightly delays the point at which it says it will have provided broadband – mostly a faster form of DSL, sent over copper telephone lines – to 85 percent of New Hampshire. That point was supposed to have been reached April 1 of this year, but has been pushed back to Dec. 31.
Creating the faster version of DSL is a centerpiece of FairPoint’s strategy to hold onto customers even as people abandon their landline phones for cell phones. FairPoint does not sell cellular service.
The company has said it has no plans to expand the fiber- optic-to-the-home service known as FAST – which Verizon called FiOS.
The company reached slightly different agreements with Vermont, and New Hampshire’s agreement includes a “most favored nation” status in which this state can claim benefits given to other states in the agreement.
David Brooks can be reached at 594-5831 or firstname.lastname@example.org.