Fairpoint bankruptcy

After writing the last two entries regarding Lehman Brothers I'm still in a post-bankruptcy-power-struggle kind of mood.

Bankruptcy is usually seen as an end. It takes a certain usefully skewed angle of vision to see it as a beginning. In that spirit, I observe that FairPoint Communications Inc. has won approval of its amended disclosure statement with a judge's order letting the bankrupt telecommunications provider begin soliciting votes on its reorganization plan.

Fairpoint, which is headquartered in Charlotte, North Carolina, was long a rural local telecomm business -- the most old-fashioned sort of telecomm -- something from the days of "Watson, come quick, I need you!" The company leaders got ambitious in 2007 and bought Verizon’s land line service area in rural New Hampshire, Vermont, and Maine for $2.7 billion dollars, acquiring 1.48 million acces lines in the process.

That may have been over-reaching at a bad time. Fairpoint filed for bankruptcy court protection on October 26, 2009.

Even after that filing it was getting back news from those "down east" assets, as when regulators in Maine said it couldn't use its chapter 11 filing to shield itself from a mandatory rate drop.

Since then it has had to restate its numbers for the first three quarters of 2009, the pre-bankruptcy quarters, significantly.

But that's all background. Here is what I wanted to foreground. Some heavy hitters, including John Paulson and Angelo Gordon, bought large positions in Fairpoint's bank debt before its filing for chapter 11 protection.

Judge Burton Lifland, in Manhattan, Lifland recent approved the troubled service provider's reorganization plan and a $75 million loan to pay for its exit out of Chapter 11 protection. Under the plan, FairPoint will give holders of secured debt 92 percent of the shares when the company emerges from Chapter 11 protection, while unsecured creditors would get eight percent of the shares.

Lifland applied what sounds like a minimal standard for approval. "I cannot find this plan patently unconfirmable," Lifland said adding that objections could be addressed during the confirmation hearing in May.

I'll try to come to a fuller understanding of the issues involved until then. This is sound and fury, yet I think it signifies something.

More on Tollgrade

What exactly do they do?

The company website will tell you that Tollgrade is "a leading provider of service assurance products and services for centralized test systems around the world. Tolllgrade designs, engineers, markets and supports centralized test systems, test access and status monitoring products, and next generation network assurance technologies. Tollgrade's customers range from the top telecom and cable providers, to numerous independent telecom, cable and broadband providers around the world."

What does this mean?

Near as I understand, Tollgrade's equipment allows those telephone companies they service to monitor their lines from a central office, rather than sending repairmen to test wires on location. Its four biggest customers are the regional Bell operating companies: Verizon, BellSouth, SBC, Qwest.

You can find its company history here.

Ramius' complaint is that over the past five years, ending May 13, 2009, Tollgate's stock price is down about 53%. During the same period, the Nasdaq composite is down only 10%.

The problem, in Ramius' view, is a pattern of pouring "excessive amounts of capital into research and development projects as well as ill-conceived and poorly executed acquisitions."

Obviously, R&D is important to a company like Tollgate. Most of its business is devoted to plain old telephone service (POTS), which may soon prove a historic deadend. R&D is essential to adapt the company to the new directions of the telecomm industry.

Still, Ramius presumably would say -- and will say as this dispute roils onward -- that R&D can not be so large a line item as to beggar the here-and-now operational needs of the company.