FairPoint Communications 2009 Annual Report Download - page 135

Table of Contents
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companies. No guarantee is required of a subsidiary that is an operating company. Northern New England Telephone Operations LLC, Telephone
Operating Company of Vermont LLC and Enhanced Communications of Northern New England Inc. are regulated operating subsidiaries and,
accordingly, are not guarantors under the Pre-petition Credit Facility.
The Pre-petition Credit Facility is secured by a first priority perfected security interest in all of the stock, equity interests, promissory notes,
partnership interests and membership interests owned by the Company.
Old Notes
On March 31, 2008, Spinco issued $551.0 million aggregate principal amount of the Old Notes. The Old Notes mature on April 1, 2018 and are
not redeemable at the Company's option prior to April 1, 2013. Interest is payable on the Old Notes semi-annually in cash on April 1 and October 1 of
each year. The Old Notes bear interest at a fixed rate of 131/8% and principal is due at maturity. The Old Notes were issued at a discount and,
accordingly, at the date of their distribution, the Old Notes had a carrying value of $539.8 million (principal amount at maturity of $551.0 million less
discount of $11.2 million). $9.9 million of discount on the Notes was written off following the filing of the Chapter 11 Cases in order to adjust the
carrying amount of the Company's pre-petition debt to the Bankruptcy Court approved amount of the allowed claims for the Company's pre-petition
debt.
Upon the consummation of the Exchange Offer and the corresponding consent solicitation, substantially all of the restrictive covenants in the
indenture governing the Old Notes were deleted or eliminated and certain of the events of default and various other provisions contained therein were
modified.
For purposes of the Verizon Northern New England business statements prior to the Merger, some funding requirements were summarized as
Retained Earnings on the Consolidated Balance Sheet without regard to whether the funding represents debt or equity. No specific debt instruments
could be directly associated with the Verizon Northern New England business, nor were separate equity accounts maintained. As such, a portion of
interest expense net of interest income of the Verizon Companies for the years ended December 31, 2007 and 2006 was allocated to the Verizon
Northern New England business based on the percentage of the Verizon Northern New England business funding relative to the total debt and equity
for the Verizon Companies.
Prior to the filing of the Chapter 11 Cases, the Company failed to make the October 1, 2009 interest payment on the Notes. The failure to make the
interest payment on the Notes constituted an event of default under the Notes upon the expiration of a thirty day grace period. An event of default under
the Notes permits the holders of the Notes to accelerate the maturity of the Notes.
In addition, as a result of the Restatement, the Company determined that the Company was not in compliance with the interest coverage ratio
maintenance covenant and the leverage ratio maintenance covenant under the Pre-petition Credit Facility for the measurement period ended June 30,
2009, which constituted an event of default under each of the Pre-petition Credit Facility and the Swaps, and may have constituted an event of default
under the Notes, in each case at June 30, 2009.
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