FairPoint Communications 2007 Annual Report Download - page 26

Table of Contents
the borrowings under our existing credit facility or our new credit facility increase, our interest expense will increase, which could
negatively affect our ability to pay dividends on our common stock or repay or refinance our indebtedness. We seek to enter into interest
rate swap agreements which will effectively convert a significant portion of our variable rate interest exposure to fixed rates. If these swap
agreements are in force, a significant portion of our indebtedness will effectively bear interest at fixed rates rather than variable rates. After
these interest rate swap agreements expire, our annual debt service obligations with respect to borrowings under our existing credit facility
or our new credit facility will vary unless we enter into new interest rate swap agreements or purchase an interest rate cap or other form of
interest rate hedge. However, we may not be able to enter into new interest rate swap agreements or purchase an interest rate cap or other
form of interest rate hedge on acceptable terms, which could negatively affect our ability to pay dividends on our common stock or repay
or refinance our indebtedness.


We expect to spend $200 million on systems integration pursuant to the MSA in connection with the merger, $70.7 million of which
we had spent as of December 31, 2007. Verizon has agreed to reimburse us for up to $40 million of pre-closing transition costs (subject to
specific terms contained in the merger agreement). As of December 31, 2007, we had received $34.2 million of the $40 million from
Verizon, and as of the date of filing of this Annual Report, Verizon had reimbursed the full $40 million. A significant portion of the
amount we spend on system integration and other pre-closing transition costs has been spent and will be spent on assets and services
which will not be useful in our existing business. In addition, the amounts actually spent on such transition costs may exceed budgeted
amounts.
 
 
The Company is a holding company and conducts all of its operations through its operating subsidiaries. The Company currently
has no significant assets other than equity interests in its subsidiaries. As a result, the Company relies on dividends and other payments
or distributions from its operating subsidiaries to pay dividends with respect to its common stock and to meet its debt service obligations
generally. The ability of the Company’s subsidiaries to pay dividends or make other payments or distributions to the Company will
depend on their respective operating results and may be restricted by, among other things:
• the laws of their jurisdiction of organization;
• the rules and regulations of state regulatory authorities;
• agreements of those subsidiaries;
• the terms of agreements governing indebtedness of those subsidiaries; and
• regulatory orders.
The Company’s subsidiaries have no obligation, contingent or otherwise, to make funds available to the Company, whether in the
form of loans, dividends or other distributions.
 
 
Our existing credit facility imposes significant operating and financial restrictions on us. These restrictions prohibit or limit, among
other things:
• the incurrence of additional indebtedness and the issuance by our subsidiaries of preferred stock;
• the payment of dividends on, and purchases or redemptions of, capital stock;
• a number of other restricted payments, including investments;
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