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FairPoint Communications files for Chapter 11 Protection

By Steve Gavriliuc for CEOWORLD Magazine Updated:October 26, 2009

FairPoint Communications Inc. (NYSE: FRP) said it has agreed on a financial restructuring plan with its lenders. As part of the plan, the company has 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.

It has received commitments from certain lenders for a $75 million debtor-in-possession revolving credit facility. Upon emergence from Chapter 11, this facility will convert into a $75.0 million five-year revolving credit facility. The plan also provides for a new $1.0 billion secured term loan.

The company’s total debt will be reduced to around $1.0 billion from its current level of nearly $2.7 billion. Around $1.1 billion of debt under the company’s current credit facility will be converted into equity, transferring 98% of the equity ownership of the company to the secured lenders.

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 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 Hauser.

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 Plan.

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