FairPoint Communications 2003 Annual Report Download - page 45

redemption prices stated in the indenture under which the 2003 Notes were issued, together with accrued and unpaid interest, if any, to the
redemption date. In the event of a change of control, FairPoint must offer to repurchase the outstanding 2003 Notes for cash at a purchase
price of 101% of the principal amount of such notes, together with all accrued and unpaid interest, if any, to the date of repurchase.
The 2003 Notes are general unsecured obligations of FairPoint, ranking  in right of payment with all existing and future
senior debt of FairPoint, including all obligations under the Company's amended and restated credit facility, and senior in right of payment to
all existing and future subordinated indebtedness of FairPoint.
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The indenture governing the 2003 Notes contains certain customary covenants and events of default.
The proceeds from the offering of the 2003 Notes and borrowings under the Company's amended and restated credit facility's tranche A
term loan facility were used to: (i) repay the entire amount of all loans outstanding under FairPoint's then outstanding credit facility's
revolving facility, acquisition facility and tranche B term loan facility; (ii) repurchase $13.3 million aggregate liquidation preference of the
Company's Series A Preferred Stock (together with accrued and unpaid dividends thereon) at 65% of its liquidation preference;
(iii) repurchase $9.8 million aggregate principal amount of the 1998 Fixed Rate Notes (together with accrued and unpaid interest thereon) for
approximately $7.9 million; (iv) repurchase $7.0 million aggregate principal amount of the 2000 Notes (together with accrued and unpaid
interest thereon) for approximately $6.1 million; (v) make a capital contribution of approximately $1.5 million to Carrier Services, which used
these proceeds to retire $2.2 million of its debt; and (vi) pay transaction fees.
As a result of the issuance of the 2003 Notes, the Company recorded $2.8 million and $0.7 million of non-operating gains on the
extinguishment of the 1998 Fixed Rate Notes and 2000 Notes and the Carrier Services debt, respectively. The Company also repurchased
some Series A Preferred Stock at a discount of $2.9 million. Additionally, the Company recorded a non-operating loss of $5.0 million for the
write-off of debt issue costs related to this extinguishment of debt in 2003.
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On May 10, 2002, Carrier Services entered into an Amended and Restated Credit Agreement with its lenders to restructure the
obligations of Carrier Services and its subsidiaries under Carrier Services' Credit Facility. In connection with such restructuring, (i) Carrier
Services paid certain of its lenders $5.0 million to satisfy $7.0 million of the obligations under Carrier Services' Credit Facility, (ii) the lenders
converted $93.9 million of the loans and obligations under Carrier Services' Credit Facility into shares of the Company's Series A Preferred
Stock having a liquidation preference equal to the amount of the loans and obligations under Carrier Services' Credit Facility, and (iii) the
remaining loans under Carrier Services' Credit Facility and Carrier Services' obligations under its swap arrangements were converted into
$27.9 million aggregate principal amount of new term loans.
As a result of this restructuring, in 2002, the Company recorded a gain classified within discontinued operations of $17.5 million for the
extinguishment of debt and settlement of its interest rate swap agreements. The gain represents the difference between the May 10, 2002
carrying value of $128.8 million of retired debt ($125.8 million) and related swap obligations ($3.0 million) and the sum of the aggregate
value of the cash paid ($5.0 million) plus principal amount of new term loans ($27.9 million) plus the estimated fair value of the Company's
Series A Preferred Stock issued ($78.4 million).
The converted loans under the new Carrier Services' Amended and Restated Credit Agreement consist of two term loan facilities:
(i) Tranche A Loans in the aggregate principal amount of $8.7 million and (ii) Tranche B Loans in the aggregate principal amount of
$19.2 million, each of which matures in May 2007. Interest on the new loans is payable monthly and accrues at a rate of 8% per annum;
provided, however, that upon an event of default the interest rate shall increase to 10% per annum. Interest on the Tranche A Loans must be
paid in cash and interest on Tranche B Loans may be paid, at the option of Carrier Services, either in cash or in kind. For the years ended
December 31,
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2002 and 2003, $0.9 million and $1.5 million, respectively, in additional debt was issued to satisfy the accrued in kind interest on the
Tranche B loans. The principal of the Tranche A Loans is due at maturity and the principal of the Tranche B Loans is payable as follows:
(a) $3,026,000 is due on September 30, 2005; (b) $5,372,000 is due on September 30, 2006; and (c) the remaining principal balance is due
at maturity. On May 6, 2003, Carrier Services extinguished $2.2 million of the tranche A and tranche B loans. Carrier Services has made
mandatory prepayments on the tranche B loans utilizing payments received under its tax sharing agreement with the Parent and proceeds
from asset sales. As of December 31, 2003, approximately $7.9 million tranche A and $16.7 million of tranche B loans remained
outstanding. On January 30, 2004, these loans were paid in full utilizing borrowings under the Company's amended and restated credit
facility.
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In conjunction with the senior notes payable to the RTFC and the RTB and the first mortgage notes payable to the Rural Utilities
Service, certain of the Company's subsidiaries are subject to restrictive covenants limiting the amounts of dividends that may be paid.
The Company also has $0.4 million of unsecured demand notes payable to various individuals and entities with interest payable at
5.25% at December 31, 2003.