A district court judge rejected Verizon Communications Inc.’s
attempt to upend FairPoint Communications Inc.’s
bankruptcy-exit plan, clearing the way for the smaller Charlotte, N.C., phone company to move forward as a reorganized business.
Verizon had protested FairPoint’s reorganization plan, which the bankruptcy court approved in January, because it restricted the telecommunications giant’s ability to sue third parties with ties to FairPoint. Verizon is itself the target of creditor litigation arising out of FairPoint’s plan.
Judge Colleen McMahon of the U.S. District Court in Manhattan affirmed the bankruptcy court’s confirmation of FairPoint’s plan this week and rejected Verizon’s appeal, calling it “much ado about nothing” in a written order.
Under FairPoint’s plan, which has since been implemented, the secured lenders became owners of 92% of the reorganized company’s stock and unsecured creditors received 8% of that equity and the rights to proceeds from a litigation trust that would pursue possible claims against Verizon.
FairPoint blamed its October 2009 bankruptcy in part on the more-than-$2 billion in debt 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.
A stipulation in FairPoint’s plan blocked Verizon from pursuing certain lawsuits. In court papers, Verizon said the bankruptcy court did not have the power to approve such a stipulation.
McMahon said the bankruptcy court acted property because the restriction was “carefully tailored” to only bar Verizon from suing entities that could then in turn sue FairPoint or its bankruptcy estate.
She also questioned in her order why Verizon raised the appeal because the company was unable to identify a single potential claim that it might be prevented from pursuing.
A Verizon spokesman declined to comment when reached Thursday.
McMahon said any attempt to revise FairPoint’s exit strategy is now moot because the company has already enacted the plan. Since January, FairPoint has canceled its old stock, issued 26 million shares in the reorganized company that are now publicly traded and borrowed $1.08 billion from secured lenders led by Bank of America Corp.
FairPoint, which operates in 18 states and controls 1.7 million access lines, was mired in bankruptcy for more than two years, in part because it struggled to obtain state regulatory agency approval for its reorganization plan first offered in March 2010.
After tweaks to satisfy regulators, the company sought and obtained approval for its bankruptcy-exit plan in January that creditors had already overwhelmingly voted to accept.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection)
View more information: https://www.marketwatch.com/story/verizon-appeal-of-fairpoint-bankruptcy-exit-fails-2011-04-21