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FairPoint Faces Challenges Despite Bankruptcy Exit

Despite emerging from bankruptcy last month and shedding $1.8 billion in debt, FairPoint Communications still faces considerable challenges.

In assigning ratings to FairPoints creditworthiness for the first time since the telecom provider filed bankruptcy, Moodys Investors Service expressed concerns about FairPoints ability over the long term to remain competitive in the states where it generates the lions share of its business Maine, New Hampshire and Vermont.

Despite spending significant capital to expand the reach of its high speed network across the three northern New England states, significant execution risks remain, including the challenge to win back customers who have migrated to competitive providers,” Moodys Vice President and Senior Credit Officer Gerald Granovsky said in a statement.

Charlotte, N.C.-based FairPoint generates some of the lowest EBITDA (earnings before interest, taxes, deprecation and amortization) margins among incumbent wireline carriers that Moodys rates, according to the New York-based ratings agency. Moodys said FairPoints goal to shift to a more competitive cost structure may limit the companys ability to grow if it needs to add capacity to its network or devote greater spending to marketing and promotional activity.”

Moodys also expressed some doubt over whether FairPoints revenues in growing areas of the business, including high-speed Internet lines and enhanced communications services to businesses, would rise faster than the declines in the companys legacy voice revenues.

FairPoint filed for bankruptcy in October 2009. 

In March 2008, the company acquired Verizon Communications wireline operations in northern New England, making FairPoint the eighth largest telephone provider in the United States. But the company faced problems transitioning Verizons order flow and billing systems. FairPoints operating systems may need further adjustments as the company attempts to increase its revenues, according to Moodys.

FairPoint operates in 18 states, serving about 1.5 million access lines. Roughly 85 percent of the companys business is in northern New England, according to a company spokesperson.  


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