PORTLAND, Maine (AP) — The telecommunications company FairPoint Communications Inc.'s debt would be cut by nearly two-thirds under its bankruptcy reorganization plan filed Monday.
The plan outlined in a filing in U.S. Bankruptcy Court in New York, where FairPoint filed for Chapter 11 bankruptcy in October, calls for FairPoint's debt to be reduced to about $1 billion from nearly $2.8 billion.
Secured creditors will receive shares of newly issued stock amounting to an initial 92 percent ownership stake in the company. Unsecured creditors will get the remaining 8 percent.
"When FairPoint emerges, it will do so with a capital structure that contains significantly less debt," said FairPoint CEO David Hauser said. "As a result, FairPoint's financial position and ongoing liquidity will be significantly strengthened."
With operations in 18 states, FairPoint calls itself the nation's seventh-largest phone company, with northern New England making up the biggest part of the business by far.
FairPoint, based in Charlotte, N.C., has been hobbled by heavy debt and technical problems since paying $2.3 billion for Verizon Communications' land line and Internet operations in Maine, New Hampshire and Vermont in 2008.
The plan is now open to comment from creditors and is subject to approval by the bankruptcy court. Existing shareholders will get nothing for their stock when the company emerges from bankruptcy under the company's plan.
The largest class of creditors are banks and other lending institutions, who are owed $2.1 billion and will receive about 88 cents on the dollar, mainly in stock, according to the company plan. Unsecured creditors who are owed $635 million will be get paid about 17 cents for each dollar they're owed, also primarily in stock.
The plan also provides details of a new contract with unions representing about 2,500 employees in northern New England. The contract includes a one-year wage freeze beginning in August, but extends the contract by a year with workers getting a 3 percent raise in 2013 for the contract's final year.
Don Trementozzi, president of the Communication Workers of America Local 1400 in Portsmouth, N.H., expects the contract to be approved when members of his union and the International Brotherhood of Electrical Workers vote this month. The unions have been working with the company to cut costs, he said. "At the end of the day we felt it was fair," he said.
To give creditors their ownership stake in the company, the company plans to issue more than 51 million shares of new stock. When the company emerges from bankruptcy, the existing 90 million shares of stock will be canceled and rendered worthless.
The payout of 17 cents per dollar owed could have been worse for unsecured creditors, said Dick Davies, Maine's public advocate. "It was looking like they'd be getting 2 cents on the dollar," he said.
The reorganization plan also includes agreements with the states of Vermont and New Hampshire that ensure state regulators continue to maintain authority over the company and that the previous targets for customer service, maintenance of the existing telephone system and expansion of broadband Internet will be met.
The only substantive change was that broadband expansion goals for 2010 were pushed back from April 1 to Dec. 31; target dates for 2011, 2012 and 2013 remain unchanged, said Richard Head, associate attorney general in New Hampshire.
The company was continuing discussions with Maine officials on a similar agreement for that state, Hauser said.
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Associated Press Writer David Sharp in Portland contributed to this report.
