FairPoint May Ask Bankruptcy Court To Overrule Vermont Regulators

08/02/10 5:50PM By John Dillon
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AP Photo/Pat Wallenbach

(Host) FairPoint Communications may ask a federal court to overrule Vermont's rejection of the company's bankruptcy reorganization plan.

The plan was approved by New Hampshire and Maine. But Vermont regulators said the proposal was based on overly optimistic financial projections.

VPR's John Dillon reports:

(Dillon) FairPoint filed for bankruptcy last October after struggling with high debt and declining revenues in its land line business.

The deal it struck with creditors would have reduced its debt by $1 point-7 billion dollars. The company hoped to come out of bankruptcy by this fall.

But those plans were derailed when the Vermont Public Service Board rejected the bankruptcy reorganization plan. Michael Smith is FairPoint's president for Vermont.

(Smith) "We were within 30 days or so of emerging from this Chapter 11 process. And this was sort of the final hurdle that just didn't get made. So what we've got to do is look at this in terms of all of the approval that we've gotten, not disrupt any of those approvals, and at the same time try to move forward here in Vermont."

(Dillon) The PSB said FairPoint had failed to prove that the plan left the company in sound financial shape. And the board also objected to a proposed delay in broadband expansion. Now FairPoint and its creditors are faced with a choice. They can alter the plan to satisfy Vermont regulators, or they can ask the federal bankruptcy court to essentially overrule the Vermont PSB.

FairPoint told the PSB in a letter last month that it was reserving its right to ask the bankruptcy court for relief.

And the federal court probably does have the power to trump Vermont regulators. Don Kreis is an assistant professor at Vermont Law School who used to be general counsel for the New Hampshire Public Utilities Commission.

(Kreis) "We had experience here in northern New England with that problem when Public Service Company of New Hampshire went bankrupt in the late 1980s because of its Seabrook investment. And I think the answer that emerged in New Hampshire is, ‘Yes, the bankruptcy code supercedes state utility law because of the supremacy clause in the U.S. Constitution.' So, there's a substantial risk that the same principle would apply here in Vermont."

(Dillon) Kreis said FairPoint now has to decide whether to seek a bankruptcy court order first, or try to negotiate a settlement that will satisfy the Vermont PSB.

But Michael Smith of FairPoint said the reorganization plan was carefully choreographed and involved multiple players, including the unions and the other states where FairPoint does business. So any change to accommodate Vermont could affect other moving parts of the bankruptcy reorganization plan. That could end up delaying the process.

(Smith) "It serves no one's purpose, no one's purpose, to continue to linger in this Chapter 11 process. ... We're ready to get out if it. It would best to get out of it as expeditiously as possible."

(Dillon) FairPoint will decide in the next few weeks whether to ask the federal bankruptcy court to trump the Vermont PSB.

For VPR News, I'm John Dillon in Montpelier.

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