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FairPoint gets financing commitment for merger with Verizon's New England operations
By Sara Rosenberg
New York, Jan. 16 - FairPoint Communications Inc. has received a financing commitment to help fund its merger with Verizon Communications Inc.'s wireline operations in Maine, New Hampshire and Vermont, company officials said in a conference call Tuesday.
The company anticipates that immediately following the merger it will have about $2.3 billion in debt of which just over 50% will be at a fixed rate or hedged through interest rate swaps, officials said.
Proceeds from the financing commitment will be used to fund a $900 million dividend from the New England operations to Verizon, fund one time capital expenditures and for FairPoint's debt.
In addition, prior to the merger, the New England operations will issue an approximately $800 million bond to Verizon, which Verizon may use to complete a debt-to-debt exchange.
The final mix of FairPoint's bank and bond debt will depend on the tax basis at close, officials added in the call.
Under the merger agreement, FairPoint will issue about 53.8 million shares of its common stock to be distributed in a tax-free Reverse Morris Trust transaction to the shareholders of Verizon. FairPoint will also assume about $1.7 billion of debt. The total transaction value for these Verizon operations is $2.715 billion.
FairPoint's shareholders will own about 40% of the combined company, while Verizon's shareholders will own about 60%.
The transaction is targeted to close within 12 months and after the required state and federal regulatory approvals.
The combined company will have a significantly stronger capital structure with a leverage ratio of about 4.1 times EBITDA at closing, compared to the current 4.5 times, and a dividend payout ratio of 60% to 70%, upon achievement of expected cost savings and synergies, compared to the current 86%.
FairPoint is a Charlotte, N.C., provider of communications services to rural communities.
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