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Fairpoint Files For Chapter 11 Bankruptcy

October 29, 2009
Westfield Republican
CHARLOTTE, N.C.  - FairPoint Communications, Inc. (NYSE: FRP) (the ³Company²), a leading provider of a full range of communications services, today announced it has reached agreement on a comprehensive financial restructuring plan (the ³Restructuring Plan²) with lenders (the ³Supporting Lenders²) holding more than 50 percent of the outstanding debt under its secured credit facility.  The Restructuring Plan is expected to reduce the Company¹s debt by $1.7 billion thereby providing a long-term solution for the Company¹s balance sheet. 


To facilitate the implementation of the Restructuring Plan, the Company also announced that it and all of its subsidiaries have filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the ³Court²). The Restructuring Plan must be approved by the Court and the Company intends to promptly file a plan of reorganization reflecting the Restructuring Plan with the Court.  The Company and its subsidiaries expect to continue to operate their business in the ordinary course throughout the Chapter 11 process under the jurisdiction of the Court while it seeks confirmation of the Restructuring Plan.


³The day-to-day operations of our business will not be impacted by today¹s actions,² said David Hauser, Chairman and CEO of FairPoint. ³We want to assure our customers, employees and vendors that we remain committed to continuing to provide reliable, uninterrupted service to all of our customers. Today¹s actions represent a critical and positive step in our efforts to reduce our indebtedness, strengthen our financial condition and position FairPoint to compete more effectively in a dynamic marketplace,² concluded Hauser.


Upon emergence from Chapter 11, subject to certain conditions, the DIP Facility will convert into a $75.0 million five-year revolving credit facility.  Pursuant to the Restructuring Plan, the Company¹s total debt would be reduced to approximately $1.0 billion from its current level of nearly $2.7 billion which includes accrued interest and amounts owed under its interest rate swap agreements.  In addition, annual interest costs would be reduced from more than $200 million to approximately $65 million.  In accordance with the Restructuring Plan, approximately $1.1 billion of debt under the credit facility would be converted into equity, transferring 98%, and in certain circumstances, 100% of the equity ownership of the Company to the secured lenders under the credit facility, subject to future dilution for issuances under an equity incentive plan and for warrants issued under the Restructuring Plan. 


The Restructuring Plan also provides for a new $1.0 billion secured term loan.  This new term loan will (i) bear interest at LIBOR plus 4.5%, with a 2.0% LIBOR floor, (ii) have a five-year term and (iii) require mandatory amortization of $10.0 million in each of the first two years and $50.0 million in the third year following emergence from Chapter 11, with increasing annual amortization amounts thereafter through maturity.


Other terms of the Restructuring Plan are still being negotiated, but the Restructuring Plan provides that all of the Company¹s outstanding senior notes due 2018, aggregating approximately $570 million (including accrued interest), as well as other unsecured creditors will be converted into equity ownership of the Company equal to approximately 2% and will be issued warrants to purchase up to 5% of the ownership interest in the Company assuming such class accepts the Restructuring Plan. 


“We are extremely pleased with the terms of the agreement reached with our secured lenders,² stated Alfred Giammarino, Executive Vice President and CFO of FairPoint. ³This plan will provide FairPoint with significantly greater financial flexibility through the reduction of nearly $170 million in minimum annual debt service requirements.  This enhanced flexibility will enable us to continue to invest in new technologies and provide advanced services to customers throughout our service territories,² concluded Giammarino.


The Company also filed certain first day motions with the Court to enable it to continue to conduct business without interruption. These include motions providing for employees to continue to receive compensation and benefits as usual and to maintain customer programs. During the reorganization process, suppliers and contractors should expect to be paid for post-petition purchases of goods and services in the ordinary course of business.


In addition, the Company requested the Court to impose certain restrictions on trading in its common stock in order to preserve valuable tax assets. Such trading restrictions, if imposed, would apply immediately to investors beneficially owning at least 4 million shares, or 4.4 percent, of the outstanding common stock of the Company. For these purposes, beneficial ownership of stock will be measured in accordance with special U.S. tax rules that, among other things, apply constructive ownership concepts and take into account indirect holdings.


Rothschild Inc. is acting as financial advisor for the Company; AlixPartners, LLP as the restructuring advisor; and Paul, Hastings, Janofsky  Walker LLP is the Company¹s counsel.


For more information contact the FairPoint Restructuring Line at 1-888-290-4881, or visit the restructuring information Web site at www.fprestructuring.com
 
 

 

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