Fairpoint Cries Uncle

Ever since it purchased the northern New England wireline assets of Verizon, FairPoint Communications (news, filings) has had a cloud of doom hanging over it.  The combination of service issues and financial weakness just never looked good, and the company’s travails have been painful to watch.  Even lately as some of the service issues have improved, it has been clear that shareholders were probably toast.  And so it shall be, today Fairpoint formally filed for Chapter 11 in bankruptcy court.  The restructuring plan is a deal with its lenders, and includes a reduction of debt from $2.7B to around $1B and $75M in DIP (debtor in possession) financing to tide them over.  If approved, interest expense will fall by around $135M annually.  

Now hopefully, the bankruptcy filing will be mostly a financial event and will not have a huge negative effect on the employees or customers.  But nothing ever works out quite that way in real life, so if any readers from Fairpoint are advised to continue keeping their heads down.  Certainly with customers the company is already on thin ice or worse, with the state PUCs all complaining loudly.  I wonder if they will be more or less forgiving in the wake of this event.

I also wonder if there isn’t the possibility of a bidder out there for these assets.  During the BK process, the lenders would surely take a better deal if one were offered.  Might rural specialists like Windstream (NYSE:WIN, news, filings) or Frontier Communications (NYSE:FTR, news, filings) take a swing?

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Categories: Financials · ILECs, PTTs