Summary
Some time ago I had written a piece concerning continued bankruptcies in the CLEC and ILEC sides of the business. The piece was not well received.
Analysis
As much as I love the landline side of the business, the independents (who are also Incumbent LECs) are having a tough time making a go of it. However, I will be the first to admit that I cannot understand how Fairpoint blew such a perfectly good territory. You can blame the tight credit markets, but truthfully auditor of Fairpoint had signaled trouble months ago so now you can blame the creditors. This is why creditors should have listened to the auditors. Bankers are typically not experts in the field they invest in; they do a little reading, do a deal or two and suddenly everyone thinks they are an expert. This type of banker is considered an opportunistic dealmaker. There is nothing wrong in being opportunistic but frankly deep expertise is usually a good thing to have or rely on. You become an expert in a sector once you have gone through a couple of cycles of good and bad times; and more importantly have survived.
Well, the Fairpoint auditors were correct and the creditors could have intervened and forced an executive management change or at a minimum hire telecom management and operations experts to re-check the auditor’s findings.
My suggestion to the creditors: It is not too late to fix this dog. Don’t file for bankruptcy. Renegotiate the terms of the loan and force change now. Restructuring debt is pointless unless there is real corporate change.
Fairpoint’s territory still has value.
P.J. Louis consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
