FairPoint Files Reorganization, Disclosure Statement

David Hauser, chairman and CEO of FairPoint Communications, said today the company has reached a milestone in its debt restructuring efforts: the filing of its plan of reorganization and disclosure statement.

Hauser said he was following through on his commitment at the time his company filed for Chapter 11 protection to inform the public of key events in the process. Today’s filing sets in motion the next phase of the Chapter 11 process.

FairPoint has reached some settlements with the states of New Hampshire and Vermont as well as the IBEW and the CWA.

Hauser said the purpose of Chapter 11 process is to ensure fair treatment of the company’s various classes of creditors and to enable the parties to understand in plain English how their lives are being affected. “To create a level playing field, companies in Chapter 11 are required to prepare a disclosure statement that fully describes the plan terms, the case and company background in a way that provides creditors adequate information to be able to vote on the plan,” he said.

The plan outlines the following: the events leading up to Chapter 11 filing; the reasons that caused FairPoint to file for Chapter 11 – which Hauser said were largely driven by high level of indebtedness; an outline for viability as a commercial enterprise; a description of key events; financial projections; a proposed capital structure upon emergence from Chapter 11; treatment of each class of creditor claims under the plan and a description of certain risks associated with the Chapter 11 plan.

“When FairPoint emerges, it will do so with a capital structure that contains significantly less debt,” Hauser said. “In fact nearly $1.8 billion or roughly two-thirds of our existing debt will be extinguished. As a result, FairPoint’s financial position and overall liquidity will be significantly strengthened.”

Hauser said the company has reached mutually agreeable terms for a number of its key stakeholders in advance of today’s filings, giving this as the reason for the many delays in filing the plan of reorganization.

“The additional time we have taken at this stage of the process to reach these agreements will allow us to avoid costly litigation further along in the process and will enable us to speed up the timeline for completing the remainder of the process,” Hauser said. “So hopefully these agreements will allow us to emerge from Chapter 11 sooner than otherwise would have been possible.”

Hauser said FairPoint has reached a tentative agreement with the leadership of the IBEW and the CWA, which represent all its unionized employees in New England. The agreements are subject to ratification by the unions’ membership. He expects that process to conclude over the next couple of weeks.

“We believe this agreement provides the mechanism for reaching the financial objectives set forth in the Chapter 11 filing last fall,” Hauser said. He called it fair and equitable.

“The agreement modifies the current union profit sharing plan to make it consistent with our overall management incentive plans. It gives union-represented employees a greater opportunity to share in the success of the company,” Hauser said.

It defers a wage increase scheduled for later this year until 2013, thereby providing for annual wage increases in 2011, 2012, and 2013 and it extends the collective bargaining agreement for one year until August 2, 2014.

Of the settlements reached with the states of New Hampshire and Vermont, Hauser said he believes they represent a constructive, positive and pragmatic approach. FairPoint continues to negotiate with the state of Maine.

The New Hampshire agreement confirms FairPoint’s commitment to deploy capital in support of its objective of 95 percent broadband availability by March 2013. It also will continue to operator under a service quality program.

FairPoint is committed to spend $285.4 million in capital expenditures in New Hampshire over five years from the date of the close of the original acquisition. It also reaffirmed its commitment to spend at least $56.4 million on broadband buildout. An additional $10.5 million will be necessary to achieve 95 percent availability in the state as required in the March 31, 2008 order.

FairPoint can see previously imposed penalties for service quality waved if it meets performance metrics in 2010.

In Vermont, FairPoint has agreed to submit a broadband construction plan that describes the action it will undertake to deploy broadband services to 95 percent of all access lines in 50 percent of exchanges by June 30, 2012.

Hauser said the settlement also allows FairPoint to request the use of Universal Service Funds for three consecutive years to upgrade infrastructure in 50 percent of the exchanges, in order to continue to improve service quality.

“I remain very confident that FairPoint will emerge as a stronger, more viable company. But we remain committed to our long term goal of becoming the preferred communications provider for business and residential customers throughout all our markets,” Hauser said.

To help manage this process, FairPoint appointed at the end of January a new executive vice president and chief strategy officer, Ray Allierie, whose is most recently remembered for his post-merger integration and restructuring of CTC, Choice One and Conversent into One Communications. Allieri had been CEO of CT Communications since its emergence from Chapter 11 until the creation of One Communications.

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