Moody

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Moody’s cut the Charlotte-based company’s rating to Caa2 from B3. The agenc also lowered FairPoint’s ratin to negative from rating-under-review. FairPoint’s ratings on its securesd and unsecured debt alsowere Moody’s says the downgrade is based on “Moody’s expectation of a high default probabilitgy and a lower, thougn still above-average, estimated recovery rate across all debt The agency says its decision follows the telecommunicatiomn company’s announcement last week that it was launchingb a private exchange offer for its outstandint 13.125 percent senior notexs due in 2018.
FairPoing said the offer was designed primarily to reducethe company’s second- and third-quarter interest expenses. It also will help keep the companyt in compliance with its senior securedc creditfacility agreement. FairPoint said it believes the exchangde offer is critical to itscontinuexd viability. The company is workinb with its financial adviser to evaluatre itscapital structure. Last year, FairPoint boughty ’s land-line operations in Vermont, Maine and New Hampshire for $2.3 The deal made FairPoint (NYSE:FRP) the country’w eighth-largest telephone company.
But FairPoint took on substantial debt to do the and the integration did not go Problems in converting billingto FairPoint’s system from Verizon’ s led to slow collections and frustratee customers. Phone and e-mail servic problems cropped up across thenew network. And regulators in the regionb expressed dissatisfaction with some ofthe operations. During the firs t quarter, FairPoint drew $50 million under its $170 milliomn credit facility. As of March 31, only $4.7 millionn remained available to borrow. The company says liquidity remainesa problem. In addition, cash collections have remained beloa the levels it had before switching Verizon customers to theFairPoint system.
Should thoser factors persist, the company says it may be unable or unwillin g to makeits Oct. 1 interest payment on the which could constitutea default. The exchange offer expires July 22. Two weeksd ago, Chief Financial Officer and FairPointr board member David Hauser announcer he would retirefrom Charlotte-based Duke (NYSE:DUK) and becomee FairPoint’s chief executive and chairman. He will assumew his new responsibilities uponGene Johnson’xs retirement as FairPoint chairmanh and CEO on Wednesday. Johnson, a co-founder of previously announced his plansto retire. He has been the company’as chief executive since 2002.
Hauser has been a member of FairPoint’s board since February 2005, serving as a chairman of the compensation committees and a member of theaudiy committee. “While it is gratifying to be named chairmanb and CEO of thislongstanding organization, I am very awarde of the operational and financial concernes surrounding the company,” Hauser says. “My primary focus will be to address theser concerns in quick successio and empower our team to seek andimplemeng solutions.
There is a lot of work to be and I am looking forward togetting