Wall Street’s melt down could burn consumers throughout Northern New England — especially those in Maine.
The flashpoint is FairPoint Communications, the state and the region’s principal phone company.
On Monday, FairPoint borrowed $200 million in cash for fear its major lenders might collapse and make that money unavailable.
FairPoint’s financial positions have been under scrutiny since the January 2007 announcement that the North Carolina-based company would buy Verizon’s northern New England landline operations (see “We Told You So,” by Jeff Inglis, July 4).
But the company’s financial struggles worsened Monday, when Lehman Brothers, a major lender to FairPoint, filed for bankruptcy protection.
Lehman was one of a group of lenders who collectively had offered to loan FairPoint $400 million. Of that total, Lehman was responsible for 30 percent, or $120 million, according to financial statements from the publicly traded FairPoint. (Spokesmen for the company did not return phone calls before the Phoenix’s deadline.)
Before this week, FairPoint had already borrowed $170 million of that group’s $400 million. Monday’s loan, also from those lenders, maxed out one of its largest available lines of credit and gave FairPoint $200 million more cash on hand. A company spokesman told CNN that he expected the $30 million in remaining credit to become unavailable due to the financial market problems. (It may sound like a lot of money, but it’s really small potatoes in the context of corporate financing. FairPoint, for example, borrowed most of the $2.3 billion it paid Verizon for the land-lines.)
Maine utilities regulators say having a cash reserve that the company spends down over time is better than not being able to pay for investments because money isn’t available from loans. But it’s a sign of how much FairPoint is relying on credit — rather than revenue from customers — to keep its finances afloat.
Making that sign more ominous is FairPoint’s admission to CNN that this move is more expensive than borrowing cash as the company needs to spend it, because the interest FairPoint earns on the funds it hoards will be less than the interest it owes on the loans. So FairPoint will be losing money just sitting still.
Also Monday, the company announced it would sit still longer, delaying its full takeover of telecommunications land-lines in northern New England until at least January 2009. In the meantime, FairPoint is paying Verizon $16 million a month to run the phone systems in Maine, New Hampshire, and Vermont.
Outside consultants hired by the three states’ regulators reported on Monday that while FairPoint had made “substantial progress” toward being ready for the takeover, some software systems aren’t finished yet. As a result, training programs haven’t been finalized, and workers haven’t been taught how to use the not-yet-ready software.
Fred Bever at the Maine Public Utilities Commission and Bill Black, the deputy public advocate (a state agency tasked with representing the public interest in utilities-regulation cases), both say the delay is a good move. In Bever’s words, it’s “better than the risk of widespread service problems.”
Black says it’s too early to tell whether the postponement will cause any more problems for Maine consumers, but promised to keep an eye on things. But then again, Black admitted that, a day after it came out, he hadn’t yet read the report that forced yet another delay in finalizing the largest utilities deal in Maine history.