NEW YORK -(Dow Jones)- A judge Thursday signed off on FairPoint Communications Inc.'s (FRCMQ) plan to exit bankruptcy protection in the hands of its lenders, more than a year after the phone company filed for Chapter 11.
Judge Burton R. Lifland of U.S. Bankruptcy Court in Manhattan confirmed the plan despite the objections of Verizon Communications Inc. (VZ), which said certain details of a litigation trust set up to investigate Verizon's sale of New England phone assets to FairPoint weren't adequately disclosed to the court. Some creditors argue that the deal may have tipped FairPoint into its bankruptcy. Verizon is also saying that wording in the plan could prevent it from pursuing claims against third parties that may come down the road. Verizon wasn't objecting to the plan itself, just those aspects.
FairPoint creditors voted in favor of the plan last May, but Vermont regulators--who had to sign off on the bankruptcy exit--held up confirmation and eventually forced FairPoint to revise its financial projections.
The revised version of what is essentially the same plan calls for lenders owed $2.1 billion to trade their debt for a new $1 billion term loan and 92% of the company's new stock, and values the company at $1.5 billion, 20% less than it previously had said. FairPoint's unsecured creditors, including bondholders owed $575 million, would swap their debt for the other 8% of the reorganized FairPoint's stock and warrants to buy additional shares. Lifland, in agreeing with FairPoint that the valuation changes didn't necessitate a new vote by creditors, called the case one with "lots of byways and challenges."
The revised plan also ensures that FairPoint will have ample cash reserves to run its operations. Cash payments to stakeholders under that plan will occur only if the company has more than $40 million of cash on hand. If the company lacks the necessary funds, stakeholders will have to wait for FairPoint to build up its reserve before the payment can be made.
FairPoint filed for Chapter 11 protection in October 2009. The company seemed on pace to emerge from bankruptcy in 2010 after creditors voted in favor of the plan in May and regulators in Maine and New Hampshire approved of the deal in June and July, respectively. But Vermont regulators withheld their approval until last week.
The Charlotte, N.C., company blamed its financial woes largely on the massive debt load it took on to purchase New England landlines from Verizon in 2008. The deal catapulted FairPoint from a small, rural telephone operator to the seventh-largest phone company in the country.
FairPoint operates in 18 states and controls 1.7 million access lines.
At a hearing later this month, creditors will ask a judge to approve its motion for Verizon and its financial advisers to submit more documents about the sale.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.)
-Eric Morath contributed to this article.
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