Maine Owl

It was bound to happen


Jack McKay and Steve Husson of Food AND Medicine warn against FairPoint in September 2007

The clip above reminds us that strong warnings were issued by labor leaders prior to the tax-avoidance-inspired* sale to FairPoint by Verizon of northern New England's land-line telephone system. The issue was that FairPoint would struggle to accomplish system modernization and extension of broadband to electronic deserts in rural areas while trying to service an enormous $2 billion debt load.

A major crack has appeared in the apparent ability of FairPoint to live up to its obligations and promises. According to an Associated Press story in the Bangor Daily News today, FairPoint wants to "delay a scheduled $11.25 million debt payment" due this month until June.

My question is, is FairPoint's "pledge" to resume regular payments after things "stabilize" in the summer worth anything given that it wants to break its promise to make this payment? Obviously, there is trouble with the post-sale stability of the company. Will FairPoint be able to keep its promises? The alternative? Is another public bailout on the horizon? Only time will tell.

Update: Another AP story in the Friday BDN points out that FairPoint has been shedding customers like fur off a collie, and has what fairly recently was a stock price of $11 now is worth "between 38 and 42 cents a share," to an insider (according to an SEC filing). The switchover from Verizon turned into a boondoggle. This was a very stupid idea from the get-go.

Update 2: Jeff Inglis at The Phoenix has more in a piece this week:

The company has asked regulators in Maine, New Hampshire, and Vermont for permission to miss a March 31 $11.25 million quarterly payment to creditors, saying that while the states' public-utilities commissions had required the payment as a condition of the Verizon purchase, FairPoint's actual lenders don't require any money until the end of June.

"FairPoint is essentially reneging on the agreement," says Wayne Jortner, senior counsel in Maine's Office of the Maine Public Advocate, a state agency charged with defending customers' interests in utilities regulation.

The company is promising to make up the payment by the end of the year, to meet its state-mandated obligation of paying $45 million annually to reduce the heavily leveraged company's debt load. And Jeff Nevins, FairPoint's Maine spokesman, says the request will allow "more financial flexibility." But that flexibility may not help it keep that promise, based on the company's March 4 filing with federal securities regulators.

Thanks, Jeff. Please stay on this.

*For some explanation of the "Reverse Morris Trust," see the Maine Owl post HERE. (Vermont relented and allowed the sale to proceed in early 2008.)