It's official - FairPoint has filed for bankruptcy protection. Here's the spin they're trying to put on it. Bottom line: Worse service, higher rates.
FOR IMMEDIATE RELEASE
Reaches Agreement with Bank Lenders –
Voluntary Chapter 11 Proceeding
Chapter 11 Filing Will Not Impact the Company’s Operations or
and Will Reduce Debt by $1.7 billion
CHARLOTTE, N.C. (October 26, 2009) – FairPoint
Communications, Inc. (NYSE: FRP) (the “Company”), a leading provider of a full
range of communications services, today announced it has reached agreement on a
comprehensive financial restructuring plan (the “Restructuring Plan”) with
lenders (the “Supporting Lenders”) holding more than 50 percent of the
outstanding debt under its secured credit facility. The Restructuring Plan is
expected to reduce the Company’s debt by $1.7 billion thereby providing a
long-term solution for the Company’s 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 “Court”). 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.
“The day-to-day operations of our business will not be
impacted by today’s actions,” said David Hauser, Chairman and CEO of FairPoint.
“We want to assure our customers, employees and vendors that we remain committed
to continuing to provide reliable, uninterrupted service to all of our
customers. Today’s 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,” concluded
In connection with the Restructuring Plan, the Company has
received commitments from certain of the Supporting Lenders for a $75 million
debtor-in-possession revolving credit facility (the “DIP Facility”) to ensure
sufficient liquidity during the Chapter 11 process. The Company currently has
approximately $46 million of cash on hand and expects to continue to generate
positive operating cash flow. In total, including the DIP Facility, the Company
will have available liquidity of approximately $121 million. In addition, under
the terms of the Restructuring Plan, the Company does not expect to pay interest
or principal on its prepetition debt while in Chapter 11.
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 Company’s
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
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 Company’s
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,” stated Alfred Giammarino, Executive Vice
President and CFO of FairPoint. “This 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,” concluded
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 Company’s 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.
FairPoint Communications, Inc. is
an industry leading provider of communications services to communities across
the country. Today, FairPoint owns and operates local exchange companies in 18
states offering advanced communications with a personal touch, including local
and long distance voice, data, Internet, television and broadband services.
FairPoint is traded on the New York Stock Exchange under the symbols FRP and
FRP.BC. Learn more at www.fairpoint.com.
This press release may contain forward-looking statements by
FairPoint that are not based on historical fact, including, without limitation,
statements containing the words “expects,” “anticipates,” “intends,” “plans,”
“believes,” “seeks,” “estimates” and similar expressions and statements. Because
these forward-looking statements involve known and unknown risks and
uncertainties, there are important factors that could cause actual results,
events or developments to differ materially from those expressed or implied by
these forward-looking statements. Such factors include: the potential adverse
impact of the Chapter 11 filing on FairPoint’s business, including its ability
to maintain contracts, trade credit and other customer and vendor relationships;
FairPoint’s ability to secure additional support from its lenders and its
noteholders for its proposed restructuring plan; FairPoint’s ability to obtain
court approval of, and to consummate, a plan of reorganization; and those risks
described from time to time in FairPoint’s filings with the Securities and
Exchange Commission (“SEC”), including, without limitation, the risks described
in FairPoint’s most recent Annual Report on Form 10-K on file with the SEC.
These factors should be considered carefully and readers are cautioned not to
place undue reliance on such forward-looking statements. All information is
current as of the date this press release is issued, and FairPoint undertakes no
duty to update this information.
Source: FairPoint Communications, Inc., www.FairPoint.com.
Investor Contact: Brett Ellis (866) 377-3747; firstname.lastname@example.org
Media Contact: Rose Cummings (704) 602-7304; email@example.com
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