Capgemini Holds FairPoint Hostage for $30 Million Preference in Bankruptcy
Monadnock Research (VII N51) - 19 November 2009
CHARLOTTE, N.C. -- FairPoint Communications, who filed a U.S. bankruptcy petition in late October, has agreed to settle its fee dispute with Capgemini for $30 million in cash. Half that amount has been paid and the other half is due and payable by 31 December. An additional $20 million will be treated as unsecured debt in the bankruptcy. It is anticipated that secured creditors will receive 98 percent of equity in the new entity that emerges from bankruptcy, with unsecured debtors receiving a small portion of the remaining 2 percent. An additional $2.25 million is currently due and payable, and will be paid. Fairpoint will only have 10 days to cure any breach in its agreements going forward and any breach will result in the termination of the companies' 2009 IT agreement. In the agreement Capgemini reserves assignment of the IT agreement to a new entity, and stipulates conditions under which it will approve the reorganization plan. Fairpoint and its 160 operating entities filed voluntary petitions on 26 October for reorganization under Chapter 11 of the U.S. Bankruptcy Code in U.S. Bankruptcy Court for the Southern District of New York. The New York Stock Exchange has notified the U.S. SEC that it intends to remove the entire class of FairPoint Communications Common Stock from listing and registration on the exchange at the opening of business on 27 November 2009. AlixPartners has been approved as restructuring advisor. and has billed $990,000 in fees in September and October, with wire payments made within 7 days of receiving invoices biweekly. Rothschild is acting as financial advisor for the Company; and Paul, Hastings, Janofsky & Walker LLP is the company's counsel. An interim order was signed on 18 November authorizing retention of Ernst & Young LLP as tax services provider and independent auditor. The final hearing on that selection is scheduled for 10 December. Unsecured creditors, bondholders, shareholders, and union members are starting to question the fact that FairPoint Communications' bankruptcy plan calls for paying off consultants, attorneys, executives, and secured lenders, and leaves little for them. The fact that Capgemini was able to threaten to leave and subsequently get such a large percentage of what it was owed in cash has rankled some stakeholders. The bondholders have been the first to squawk at the deal. They are calling for appointment of a special examiner to investigate the deal to see if any fraud is involved. FairPoint bankruptcy release
FairPoint restructuring filings
Capgemini IT services agreement
Capgemini settlement agreement
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