High interest rate spurs re-evaluation of FairPoint deal
Saturday, March 29, 2008 - Bangor Daily News   

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AUGUSTA, Maine - The Public Utilities Commission held an emergency hearing and deliberations Friday on the FairPoint Communications takeover of Verizon's land-line and Internet services in northern New England after FairPoint sold bonds to finance the deal at interest rates that were much higher than expected.

The commissioners decided that the $2.35 billion deal can still go through despite the higher rates.

But New Hampshire and Vermont regulators later announced that they will hold emergency meetings Sunday to reconsider the sale. All three states must agree to the deal for it to take effect on Monday as planned.

"FairPoint has gotten caught up in the [nationwide] credit crisis," Maine PUC Chairman Kurt Adams said in an interview. "The banks are not lending like they were three or four months ago when we approved the transaction."

North Carolina-based FairPoint went to the bond market earlier this week to raise $540 million to help finance the deal. The bonds carried an interest rate of 13.5 percent, well above the expected interest rate range assumed when the deal was approved by the PUC.

FairPoint provides local and long distance voice, data, Internet, video and broadband services to rural and small urban communities across the country. It owns and operates 30 local exchange companies in 18 states.

"When we approved the deal, we put a lot of protections in for consumers," Adams said. "If FairPoint?s financial condition erodes below a certain point, dividends can start to be restricted and FairPoint can be required to sell off assets."

But, he said, the commission decided to hold the emergency hearing and deliberations to formally assess whether the safeguards are adequate with the sale expected to become final on Monday.

"We looked at the protections we put in place, we looked at the size of the risk before us and came to the conclusion that the protections still appear to be adequate," Adams said.

During the panel?s deliberations, PUC member Sharon Reishus said that while the higher interest rate does raise concerns, she agrees there are enough safeguards in place to protect consumers.

"I am not in a position where I want to reject the deal entirely at this point," she said. "I think the deal should go forward. I think the credit crisis is a very good example of [an] unanticipated event, but we may see others that FairPoint will have to come to grips with."

Reishus said the PUC has fulfilled its obligations by once again reviewing the deal after learning of the unexpectedly high finance cost.

PUC member Vendean Vafiades agreed with her fellow commissioners that the high interest rate was "unfortunate" but not of such consequence as to disrupt the completion of the sale.

"I do not feel that the information that we have before us is that there is a material and adverse effect of FairPoint?s financial condition at this moment in time," she said. "I believe we should keep the stipulation in place and not interfere with the closing."

Donald Kreis, general counsel of the New Hampshire Public Utilities Commission, said the higher interest rate will cost FairPoint $17 million more a year. The bonds are 10-year bonds, he said.

"It does affect the financing significantly in our case," Kreis said.

Vermont regulators want to take another look at the deal, said Stephen Wark, a spokesman for the Vermont Public Service Department.

The sale already has the approval, by a 3-2 vote, of the Federal Communications Commission.

If the deal goes through as planned on Monday, FairPoint will take over providing phone service to 1.6 million homes and businesses in the three states.

The Associated Press contributed to this report.