Sale of FairPoint Comm: Illinois

Over the course of the last few months, a number of state regulatory agencies have considered the proposed acquisition of a local exchange carrier (LEC) group, FairPoint Communications, by a telecommunications conglomerate, Consolidated Communications Holdings. Soon after the FCC took action to authorize the merger to proceed, other states began to follow suit. Illinois relied on proposed settlements in ruling that the merger should be approved.

The Illinois Commerce Commission was one of the regulatory agencies for which FairPoint's outstanding debt was a critical factor. Given that FairPoint has three small LEC subsidiaries in the state and had already gone through a bankruptcyrelated reorganization, the commission expressed considerable concern about the financial implications of the merger. 

To that point, the commission related that the company's 2016 year-end reports showed an unpaid debt balance of $916 million. With debt approaching a billion dollars, the commission deemed it imperative that the merger agreement address the issue, which it did. 

The merger parties stipulated that upon closing, Consolidated Holdings will assume the entirety of FairPoint's debt. The acquiring company informed the commission that it had already secured an incremental term loan in the amount of $935 million, through which to cover transaction costs and refinance the debt. Because Consolidated had been able to negotiate an extended maturity date, and because the refinancing terms will entail an interest rate of 4.0%, as compared to the 7.99% rate currently applicable to the debt, the commission concurred that the risks associated with Fair- Point's large debt load had been properly mitigated. 

The lowering of the debt payments was viewed as an affirmative benefit in itself. While the commission said it was inconclusive whether other cost savings could be assured as a result of the merger, it determined that there was no reason to believe that any economic harm or diminution in service would come to consumers on a post-merger basis. 

The commission explained that not only does the settlement explicitly disallow transaction costs from being recovered in rates, but it also sets forth terms prohibiting the subsidization of nonutility activities by FairPoint's LEC customers. Re Consolidated Communications Holdings, Inc. et al., 17-0043, June 28, 2017 (Ill.C.C.).