Bond holders fighting FairPoint

MANCHESTER – Bondholders representing $460 million of FairPoint Communication Inc. bonds have asked the U.S. Bankruptcy Court in Manhattan to appoint an examiner.

"At this point the debtors have lost their credibility with investors, creditors, regulators and the public alike, and this court should not buy into their 'we've got it right this time' approach to these Chapter 11 cases," attorneys with Stroock & Stroock & Lavan LLP, New York, wrote.

The bond holders are seeking an examination into alleged discrepancies in FairPoint's public reports, specifically "whether there has been an effort by the debtors' management to cover up their own operational shortcomings," according to the filing.

"There is a strong public interest in the investigation of these issues," the filing said, noting FairPoint provides communications services to nearly two million customers.

Bond holders' attorney Kristopher M. Hansen declined further comment on the case yesterday.

FairPoint Communications Inc. spokeswoman Jill Healey Wurm said, "This is a complex legal process which is expected to take a number of months.

"We adamantly dispute the allegations in the motion filed by the ad hoc committee of bondholders, and we will deal with these allegations in due course through the bankruptcy court process," she said.

> Bond holders in FairPoint case

New Hampshire Associate Attorney Richard Head said the state has reviewed the motion but made no determination whether to take any specific actions regarding it.

A hearing on the motion is set for November 18 at 10 a.m. in the U.S. Bankruptcy Court for the Southern District of New York.

The bond holders' filing said FairPoint's position had changed from offering them control of the company as late as August (and leaving all of FairPoint's pre-bankruptcy bank debt in place) to giving control of the company to the banks and offering the bond holders just 2 percent of the equity of the reorganized company. It also said the company's reorganization plan hands over 10 percent of the company to management.

The bondholders identified FairPoint's $23 million dividend paid to shareholders in January and $15 million paid in October to systems integrator Capgemini as possibly subject to recovery if it can be factually established that the company was insolvent when it made the payments or was pushed into insolvency by making them.

Bankruptcy attorney Dan Sklar, who teaches bankruptcy law at Franlkin Pierce Law Center and is a senior counsel at Nixon Peabody, said such a recovery would mean more money for the bondholders and possibly other unsecured creditors.

Charlotte, N.C.-based FairPoint has been burdened by high debt levels since purchasing 1.6 million land lines in northern New England from Verizon March 31, 2008, for more than $2 billion.

In July, a majority of holders of FairPoint's 13-1/8 percent senior notes, or bonds, agreed to a swap that allowed the company to postpone the quarterly interest payment until 2018. The company said in a previous SEC filing it would owe $36 million in interest on them in October.

"The debtors' public statements and their prior discussions with the Ad Hoc Committee are all apparently now belied by the debtors' current outlook and business plan," the bondholders's attorneys said in their motion.

The Ad Hoc Committee represents approximately 83 percent of the aggregate principal amount of senior notes outstanding, according to a filing.

By the end of September, FairPoint's debt had grown to $1.9 billion of bank debt and $500 million of bond debt.

FairPoint filed for bankruptcy reorganization Oct. 26.

Write to New Hampshire Union Leader Business Reporter Denis Paiste at dpaiste@unionleader.com.

CORRECTION: Attorney Dan Sklar's role with the Nixon Peabody law firm was reported incorrectly when this story was first posted.