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FairPoint Clears Key Reorganization Hurdle, At Creditors’, Consumers’ Expense

FairPoint no longer must abide by all of the conditions it agreed to when taking over Verizon Communications Inc. landlines in Maine.

The company has cleared a key hurdle in its bankruptcy reorganization plan thanks to a 2-1 vote from the Maine Public Utilities Commission in favor of post-insolvency proposals.

From a financial standpoint, the new approvals mean FairPoints debt could drop from $2.8 billion to $1 billion and give secured creditors 92 percent ownership in the restructured company that is, if regulators in New Hampshire and Vermont follow Maines lead. If they do, unsecured creditors will receive 17 cents for every dollar FairPoint owes them.

From a consumer standpoint, the news gets iffier. Maine officials, except for Commissioner Vendean Vafiades, granted FairPoints request to put off finishing the first phase of its broadband expansion plans. The wider availability was supposed to have happened by April; the new date is December of this year. FairPoint also is allowed to cut the percentage of lines it was supposed to upgrade for broadband from 90 percent to 87 percent. Finally, FairPoint now is free to price unregulated broadband services however it likes and has another three months to repay subscribers for poor service received last year.

“FairPoint’s financial restructuring and shedding of $1.7 billion in debt is certainly in the interests of Maine ratepayers the company will emerge a healthier, more stable company able to service Maine telephone customers,” Commission Chairman Sharon Reishus said in a press release.

But Vafiades said FairPoint is using bankruptcy to retract its promises, which were a big part of why the Maine PUC said the $2.7 billion deal could happen in the first place. In 2008, FairPoint went deep into debt to take over Verizon wireline assets, setting off a year of billing debacles and interrupted service that led to an October 2009 bankruptcy declaration.

FairPoint hopes to emerge from bankruptcy by early fall.


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