FairPoint Communications 2007 Annual Report Download - page 65

Table of Contents
Business — Recent Developments — Regulatory Conditions,” “Item 1. Business — Regulatory Environment — State Regulation —
Regulatory Conditions to the Merger” and “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities — Dividend Policy and Restrictions.”
We expect that our annual maintenance capital expenditures following the transactions will be approximately $180 million to
$190 million in the first full year following the closing of the merger. Assuming the merger closes on March 31, 2008, we expect that we
will spend approximately $120 million to $130 million following the closing of the merger, primarily on network and system upgrades
related to the integration of the Spinco business. We anticipate that we will fund these expenditures through cash flow from operations,
borrowings under the delayed draw term loan facility of the new credit facility and, if necessary, borrowings under the revolving credit
facility of the new credit facility, if necessary.
In addition, as a condition to the approval of the transactions by state regulatory authorities, we have agreed to make additional
capital expenditures following the completion of the merger. As a condition to the approval of the transactions by the state regulatory
authority in Maine, we have agreed that, following the closing of the merger, we will make capital expenditures in Maine during the first
three years after the closing of $48 million in the first year and an average of $48 million in the first two years and $47 million in the first
three years. We are also required to expend not less than $40 million (in addition to the $12 million obligation of the Verizon Group
discussed in “Item 1. Business — Recent Developments — Regulatory Conditions,” “Item 1. Business — Regulatory Environment —
State Regulation — Retail Regulation” and our separate $17.6 million obligation to implement a two-year DSL deployment plan) on
equipment and infrastructure to expand the availability of broadband services in Maine.
The order issued by the state regulatory authority in Vermont also requires us to make capital expenditures in Vermont during the
first three years after the closing of the merger in the amount of $41 million for the first year and averaging $40 million per year in the
first two years and $40 million per year in the first three years following the closing of the merger. Pursuant to the Vermont order, we are
required to remove double poles in Vermont, make service quality improvements and address certain broadband buildout commitments
under a performance enhancement plan in Vermont, using, in the case of double pole removal, $6.7 million provided by the Verizon
Group and, in the case of service quality improvements under the performance enhancement plan, $25 million provided by the Verizon
Group.
We are also required to make capital expenditures in New Hampshire of at least $52 million during each of the first three years after
the closing of the merger and $49 million during each of the fourth and fifth years after the closing of the merger. The amount of any
shortfall in any year must be expended in the following year, and the amount of any excess in any year may be deducted from the amount
required to be expended in the following year. If any shortfall in any year exceeds $3 million, then the amount that we are required to
spend in the following year shall be increased by 150% of the amount of such shortfall. If there is any shortfall at the end of the fifth year
after the closing of the merger, we will be required to spend 150% of the amount of such shortfall at the direction of the NHPUC. We are
required to spend at least $56.4 million over the 60-month period following the closing of the merger on broadband infrastructure in New
Hampshire. We also are obligated to use a $25 million contribution by the Verizon Group to the working capital of Spinco prior to the
closing and a $25 million payment by the Verizon Group to us following the closing, or its net present value at the closing, to make
capital expenditures in New Hampshire in addition to those described above. See “Item 1. Business — Recent Developments —
Regulatory Conditions” and “Item 1. Business — Regulatory Environment — State Regulation — Regulatory Conditions to the Merger.”
In connection with the transactions, we will incur or assume substantial amounts of indebtedness, including amounts outstanding
under the new credit facility and the notes. Interest payments on this indebtedness will be a significant use of our cash flow from
operations following the transactions. We expect that immediately following the transactions we will have total debt of approximately
$2.2 billion and annual interest expense of approximately $175 million. However, the amount of indebtedness following the transactions
is subject to change, including as a result of market conditions.
We anticipate that our new credit facility will consist of a senior secured six-year revolving credit facility in an aggregate principal
amount of $200.0 million, a senior secured six-year term loan A facility in an
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