Tuesday, March 16, 2010

Fairpoint bankruptcy

After writing the last two entries regarding Lehman Brothers I'm still in a post-bankruptcy-power-struggle kind of mood.

Bankruptcy is usually seen as an end. It takes a certain usefully skewed angle of vision to see it as a beginning. In that spirit, I observe that FairPoint Communications Inc. has won approval of its amended disclosure statement with a judge's order letting the bankrupt telecommunications provider begin soliciting votes on its reorganization plan.

Fairpoint, which is headquartered in Charlotte, North Carolina, was long a rural local telecomm business -- the most old-fashioned sort of telecomm -- something from the days of "Watson, come quick, I need you!" The company leaders got ambitious in 2007 and bought Verizon’s land line service area in rural New Hampshire, Vermont, and Maine for $2.7 billion dollars, acquiring 1.48 million acces lines in the process.

That may have been over-reaching at a bad time. Fairpoint filed for bankruptcy court protection on October 26, 2009.

Even after that filing it was getting back news from those "down east" assets, as when regulators in Maine said it couldn't use its chapter 11 filing to shield itself from a mandatory rate drop.

Since then it has had to restate its numbers for the first three quarters of 2009, the pre-bankruptcy quarters, significantly.

But that's all background. Here is what I wanted to foreground. Some heavy hitters, including John Paulson and Angelo Gordon, bought large positions in Fairpoint's bank debt before its filing for chapter 11 protection.

Judge Burton Lifland, in Manhattan, Lifland recent approved the troubled service provider's reorganization plan and a $75 million loan to pay for its exit out of Chapter 11 protection. Under the plan, FairPoint will give holders of secured debt 92 percent of the shares when the company emerges from Chapter 11 protection, while unsecured creditors would get eight percent of the shares.

Lifland applied what sounds like a minimal standard for approval. "I cannot find this plan patently unconfirmable," Lifland said adding that objections could be addressed during the confirmation hearing in May.

I'll try to come to a fuller understanding of the issues involved until then. This is sound and fury, yet I think it signifies something.

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