0000921895-16-004872.txt : 20160608 0000921895-16-004872.hdr.sgml : 20160608 20160608083940 ACCESSION NUMBER: 0000921895-16-004872 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20160608 DATE AS OF CHANGE: 20160608 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: FAIRPOINT COMMUNICATIONS INC CENTRAL INDEX KEY: 0001062613 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 133725229 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-80601 FILM NUMBER: 161702731 BUSINESS ADDRESS: STREET 1: 521 EAST MOREHEAD ST STREET 2: STE 250 CITY: CHARLOTTE STATE: NC ZIP: 28202 BUSINESS PHONE: 7043448150 MAIL ADDRESS: STREET 1: 521 EAST MOREHEAD ST STREET 2: STE 250 CITY: CHARLOTTE STATE: NC ZIP: 28202 FORMER COMPANY: FORMER CONFORMED NAME: MJD COMMUNICATIONS INC DATE OF NAME CHANGE: 19980527 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: MAGLAN CAPITAL LP CENTRAL INDEX KEY: 0001549263 IRS NUMBER: 273315174 STATE OF INCORPORATION: DE FISCAL YEAR END: 1212 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 25 WEST 39TH STREET, 16TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 212-300-6576 MAIL ADDRESS: STREET 1: 25 WEST 39TH STREET, 16TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10018 SC 13D 1 sc13d09450002_06072016.htm THE SCHEDULE 13D sc13d09450002_06072016.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 13D
(Rule 13d-101)

INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO § 240.13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO
§ 240.13d-2(a)

(Amendment No.  )1

FairPoint Communications, Inc.
(Name of Issuer)

Common Stock, par value $0.01 per share
(Title of Class of Securities)

305560302
(CUSIP Number)
 
STEVEN AZARBAD
DAVID D. TAWIL
MAGLAN CAPITAL LP
25 West 39th Street, 2nd Floor
New York, New York 10018
 
ANDREW FREEDMAN, ESQ.
OLSHAN FROME WOLOSKY LLP
1325 Avenue of the Americas
New York, New York 10019
(212) 451-2300
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)

June 6, 2016
(Date of Event Which Requires Filing of This Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§ 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box x.

Note:  Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits.  See § 240.13d-7 for other parties to whom copies are to be sent.


_______________
1              The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).
 
 
 
 
CUSIP NO. 305560302
 
1
NAME OF REPORTING PERSON
 
MAGLAN CAPITAL LP
2
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
  (a) o
  (b) o
3
SEC USE ONLY
 
4
SOURCE OF FUNDS
 
WC
5
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)
 
¨
6
CITIZENSHIP OR PLACE OF ORGANIZATION
 
DELAWARE
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH
7
SOLE VOTING POWER
 
- 0 -
8
SHARED VOTING POWER
 
2,062,812
9
SOLE DISPOSITIVE POWER
 
- 0 -
10
SHARED DISPOSITIVE POWER
 
2,062,812
11
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
 
2,062,812
12
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
 
o
13
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
 
7.6%
14
TYPE OF REPORTING PERSON
 
IA-PN

 
2
 
CUSIP NO. 305560302
 
1
NAME OF REPORTING PERSON
 
MAGLAN CAPITAL GP LLC
2
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
  (a) o
  (b) o
3
SEC USE ONLY
 
4
SOURCE OF FUNDS
 
WC
5
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)
 
¨
6
CITIZENSHIP OR PLACE OF ORGANIZATION
 
DELAWARE
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH
7
SOLE VOTING POWER
 
- 0 -
8
SHARED VOTING POWER
 
2,062,812
9
SOLE DISPOSITIVE POWER
 
- 0 -
10
SHARED DISPOSITIVE POWER
 
2,062,812
11
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
 
2,062,812
12
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
 
o
13
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
 
7.6%
14
TYPE OF REPORTING PERSON
 
OO

 
3
 
CUSIP NO. 305560302
 
1
NAME OF REPORTING PERSON
 
STEVEN AZARBAD
2
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
  (a) o
  (b) o
3
SEC USE ONLY
 
4
SOURCE OF FUNDS
 
OO
5
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)
 
¨
6
CITIZENSHIP OR PLACE OF ORGANIZATION
 
USA
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH
7
SOLE VOTING POWER
 
- 0 -
8
SHARED VOTING POWER
 
2,062,812
9
SOLE DISPOSITIVE POWER
 
- 0 -
10
SHARED DISPOSITIVE POWER
 
2,062,812
11
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
 
2,062,812
12
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
 
o
13
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
 
7.6%
14
TYPE OF REPORTING PERSON
 
IN

 
4
 
CUSIP NO. 305560302
 
1
NAME OF REPORTING PERSON
 
DAVID D. TAWIL
2
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
  (a) o
  (b) o
3
SEC USE ONLY
 
4
SOURCE OF FUNDS
 
OO
5
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)
 
¨
6
CITIZENSHIP OR PLACE OF ORGANIZATION
 
USA
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH
7
SOLE VOTING POWER
 
- 0 -
8
SHARED VOTING POWER
 
2,062,812
9
SOLE DISPOSITIVE POWER
 
- 0 -
10
SHARED DISPOSITIVE POWER
 
2,062,812
11
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
 
2,062,812
12
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
 
o
13
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
 
7.6%
14
TYPE OF REPORTING PERSON
 
IN

 
5
 
CUSIP NO. 305560302
 
The following constitutes the Schedule 13D filed by the undersigned (the “Schedule 13D”).
 
Item 1.
Security and Issuer.
 
This statement relates to the common stock, par value $0.01 per share (the “Shares”), of FairPoint Communications, Inc., a Delaware corporation (the “Issuer”).  The address of the principal executive offices of the Issuer is 521 East Morehead Street, Suite 500, Charlotte, North Carolina 28202.
 
Item 2.
Identity and Background.
 
(a)           This statement is filed by:
 
 
(i)
Maglan Capital LP, a Delaware limited partnership (“Maglan LP”), with respect to the Shares beneficially owned by it as the investment manager to Maglan Distressed Master Fund LP (the “Fund”) and certain managed accounts (the “Managed Accounts”) for the benefit, directly or indirectly, of members of Maglan Capital GP LLC (“Maglan LLC”);
 
 
(ii)
Maglan LLC, a Delaware limited liability company, with respect to the Shares beneficially owned by it as the general partner of Maglan LP;
 
 
(iii)
Steven Azarbad, as the Chief Investment Officer of Maglan LP and a managing member of Maglan LLC; and
 
 
(iv)
David D. Tawil, as the President of Maglan LP and a managing member of Maglan LLC.
 
Each of the foregoing is referred to as a “Reporting Person” and collectively as the “Reporting Persons.”  Each of the Reporting Persons is party to that certain Joint Filing Agreement, as further described in Item 6.  Accordingly, the Reporting Persons are hereby filing a joint Schedule 13D.
 
(b)           The address of the principal offices of each of Maglan LP, Maglan LLC and Messrs. Azarbad and Tawil is 25 West 39th Street, 2nd Floor, New York, New York 10018.
 
(c)           Maglan LP is the investment manager to the Fund and the Managed Accounts. Maglan LLC is the general partner of Maglan LP. Mr. Azarbad is the Chief Investment Officer of Maglan LP and a managing member of Maglan LLC. Mr. Tawil is the President of Maglan LP and a managing member of Maglan LLC.
 
 (d)           No Reporting Person has, during the last five (5) years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors).
 
(e)           No Reporting Person has, during the last five (5) years, been party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws.
 
(f)           Maglan LP and Maglan LLC are organized under the laws of the State of Delaware.  Messrs. Azarbad and Tawil are citizens of the United States of America.
 
Item 3.
Source and Amount of Funds or Other Consideration.
 
The Shares purchased by each of the Fund and the Managed Accounts were purchased with working capital (which may, at any given time, include margin loans made by brokerage firms in the ordinary course of business) in open market purchases.  The aggregate purchase price of the 2,062,812 Shares beneficially owned by the Reporting Persons is approximately $20,256,814, including brokerage commissions.
 
 
6
 
CUSIP NO. 305560302

Item 4.
Purpose of Transaction.
 
The Reporting Persons purchased the Shares based on the Reporting Persons’ belief that the Shares, when purchased, were undervalued and represented an attractive investment opportunity.  Depending upon overall market conditions, other investment opportunities available to the Reporting Persons, and the availability of Shares at prices that would make the purchase or sale of Shares desirable, the Reporting Persons may endeavor to increase or decrease their position in the Issuer through, among other things, the purchase or sale of Shares on the open market or in private transactions or otherwise, on such terms and at such times as the Reporting Persons may deem advisable.

On June 6, 2016, the Reporting Persons announced that they had delivered a letter to the Issuer’s Board of Directors (the “Board”), outlining the Reporting Persons significant concerns regarding the Board’s failure to protect and enhance shareholder value and reward shareholders for the Issuer’s recent operational improvements.  The Reporting Persons also outlined in the letter value-creating initiatives for enhancing long-term shareholder value at the Issuer which include, in order of priority: (i) a sale of the Issuer; (ii) initiation of a recurring dividend to shareholders; (iii) development of a company share repurchase program; (iv) retirement of outstanding debt; and (v) refinancing of outstanding debt.  The Reporting Persons also stated in the letter that they stand ready and willing to discuss the foregoing value-creating initiatives, among others, with the Board.  The full text of the letter is attached hereto as Exhibit 99.2 and is incorporated herein by reference.

No Reporting Person has any present plan or proposal which would relate to or result in any of the matters set forth in subparagraphs (a) - (j) of Item 4 of Schedule 13D except as set forth herein or such as would occur upon or in connection with completion of, or following, any of the actions discussed herein. The Reporting Persons intend to review their investment in the Issuer on a continuing basis. Depending on various factors including, without limitation, the Issuer’s financial position and investment strategy, the price levels of the Shares, conditions in the securities markets and general economic and industry conditions, the Reporting Persons may in the future take such actions with respect to their investment in the Issuer as they deem appropriate including, without limitation, continuing to engage in communications with management and the Board of the Issuer, continuing to engage in discussions with shareholders of the Issuer and others about the Issuer and the Reporting Persons’ investment, making proposals to the Issuer concerning changes to the capitalization, ownership structure, board structure (including board composition) or operations of the Issuer, purchasing additional Shares, selling some or all of their Shares, entering into financial instruments or other agreements that increase or decrease the Reporting Persons’ economic or beneficial exposure with respect to their investment in the Issuer, engaging in short selling of or any hedging or similar transaction with respect to the Shares, including swaps and other derivative instruments, or changing their intention with respect to any and all matters referred to in Item 4.

Item 5.
Interest in Securities of the Issuer.
 
The aggregate percentage of Shares reportedly owned by each person named herein is based upon 27,065,779 Shares outstanding, as of April 29, 2016, which is the total number of Shares outstanding as reported in the Issuer’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 4, 2016.
 
 
7
 
CUSIP NO. 305560302
 
A.
Maglan LP
 
 
(a)
As of the close of business on June 7, 2016, 1,789,607 Shares were owned by the Fund and 273,205 Shares were held in the Managed Accounts.  Maglan LP, as the investment manager to the Fund and the Managed Accounts, may be deemed the beneficial owner of the (i) 1,789,607 Shares owned by the Fund and (ii) 273,205 Shares held in the Managed Accounts.
 
Percentage: Approximately 7.6%
 
 
(b)
1. Sole power to vote or direct vote: 0
 
2. Shared power to vote or direct vote: 2,062,812
 
3. Sole power to dispose or direct the disposition: 0
 
4. Shared power to dispose or direct the disposition: 2,062,812

 
(c)
Maglan LP has not entered into any transactions in the Shares during the past sixty days.
 
B.
Maglan LLC
 
 
(a)
Maglan LLC, as the general partner of Maglan LP, may be deemed the beneficial owner of the (i) 1,789,607 Shares owned by the Fund and (ii) 273,205 Shares held in the Managed Accounts.
 
Percentage: Approximately 7.6%
 
 
(b)
1. Sole power to vote or direct vote: 0
 
2. Shared power to vote or direct vote: 2,062,812
 
3. Sole power to dispose or direct the disposition: 0
 
4. Shared power to dispose or direct the disposition: 2,062,812

 
(c)
Maglan LLC has not entered into any transactions in the Shares during the past sixty days.
 
C.
Mr. Azarbad
 
 
(a)
Mr. Azarbad, as the Chief Investment Officer of Maglan LP and a managing member of Maglan LLC, may be deemed the beneficial owner of the (i) 1,789,607 Shares owned by the Fund and (ii) 273,205 Shares held in the Managed Accounts.
 
Percentage: Approximately 7.6%
 
 
(b)
1. Sole power to vote or direct vote: 0
 
2. Shared power to vote or direct vote: 2,062,812
 
3. Sole power to dispose or direct the disposition: 0
 
4. Shared power to dispose or direct the disposition: 2,062,812

 
(c)
Mr. Azarbad has not entered into any transactions in the Shares during the past sixty days.
 
 
8
 
CUSIP NO. 305560302
 
D.
Mr. Tawil
 
 
(a)
Mr. Tawil, as the President of Maglan LP and a managing member of Maglan LLC, may be deemed the beneficial owner of the (i) 1,789,607 Shares owned by the Fund and (ii) 273,205 Shares held in the Managed Accounts.
 
Percentage: Approximately 7.6%
 
 
(b)
1. Sole power to vote or direct vote: 0
 
2. Shared power to vote or direct vote: 2,062,812
 
3. Sole power to dispose or direct the disposition: 0
 
4. Shared power to dispose or direct the disposition: 2,062,812

 
(c)
Mr. Tawil has not entered into any transactions in the Shares during the past sixty days.
 
As of the close of business on June 7, 2016, the Reporting Persons collectively beneficially owned an aggregate of 2,062,812 Shares, constituting approximately 7.6% of the Shares outstanding.
 
Each Reporting Person, as a member of a “group” with the other Reporting Persons for the purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, may be deemed the beneficial owner of the Shares directly owned by the other Reporting Persons.  Each Reporting Person disclaims beneficial ownership of such Shares except to the extent of his or its pecuniary interest therein.
 
 
(d)
No person other than the Reporting Persons is known to have the right to receive, or the power to direct the receipt of dividends from, or proceeds from the sale of, the Shares.
 
 
(e)
Not applicable.
 
Item 6.
Contracts, Arrangements, Understandings or Relationships With Respect to Securities of the Issuer.
 
On June 7, 2016, the Reporting Persons entered into a Joint Filing Agreement in which, among other things, the Reporting Persons agreed to the joint filing on behalf of each of them of statements on Schedule 13D with respect to the securities of the Issuer.  The Joint Filing Agreement is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
 
Item 7.
Material to be Filed as Exhibits.
 
 
99.1
Joint Filing Agreement by and among Maglan Capital LP, Maglan Capital GP LLC, Steven Azarbad and David D. Tawil, dated June 7, 2016.
 
 
99.2
Letter to the Board of Directors, dated June 6, 2016.
 
 
9
 
CUSIP NO. 305560302
 
SIGNATURES
 
After reasonable inquiry and to the best of his knowledge and belief, each of the undersigned certifies that the information set forth in this statement is true, complete and correct.
 
Dated:  June 7, 2016
 
Maglan Capital LP
 
By:
Maglan Capital GP LLC
 
General Partner
 
By:
/s/ Steven Azarbad
 
Name:
Steven Azarbad
 
Title:
Chief Investment Officer

 
Maglan Capital GP LLC
 
By:
/s/ Steven Azarbad
 
Name:
Steven Azarbad
 
Title:
Managing Member

 
   
   
/s/ Steven Azarbad
  
Steven Azarbad


   
   
/s/ David D. Tawil
  
David D. Tawil
 
 
10
 
 
 EX-99.1 2 ex991to13d09450002_06072016.htm JOINT FILING AGREEMENT ex991to13d09450002_06072016.htm
Exhibit 99.1
 
JOINT FILING AGREEMENT

In accordance with Rule 13d-1(k)(1)(iii) under the Securities Exchange Act of 1934, as amended, the persons named below agree to the joint filing on behalf of each of them of a Statement on Schedule 13D (including additional amendments thereto) with respect to the shares of common stock, $0.01 par value, of FairPoint Communications, Inc., a Delaware corporation.  This Joint Filing Agreement shall be filed as an Exhibit to such Statement.
 
Dated:  June 7, 2016
 
 
Maglan Capital LP
 
By:
Maglan Capital GP LLC
 
General Partner
 
By:
/s/ Steven Azarbad
 
Name:
Steven Azarbad
 
Title:
Chief Investment Officer

 
Maglan Capital GP LLC
 
By:
/s/ Steven Azarbad
 
Name:
Steven Azarbad
 
Title:
Managing Member

 
   
   
/s/ Steven Azarbad
  
Steven Azarbad


   
   
/s/ David D. Tawil
  
David D. Tawil
 
 EX-99.2 3 ex992to13d09450002_06072016.htm LETTER TO THE BOARD OF DIRECTORS, DATED JUNE 6, 2016 ex992to13d09450002_06072016.htm
Exhibit 99.2
 
 
 
June 6, 2016
 
Members of the Board of Directors
c/o Paul Sunu, CEO
FairPoint Communications, Inc.
521 E Morehead St
Charlotte, NC 28202

Gentlemen:
 
Investment funds affiliated with Maglan Capital LP are significant, long-term shareholders of FairPoint Communications, Inc. ("FairPoint" or the "Company"), with holdings together representing beneficial ownership of approximately 7.5 percent of FairPoint's outstanding common equity. We believe there is a serious discrepancy between FairPoint's improved balance-sheet, operating performance and prospects, on the one hand, and its current market valuation, on the other. It is our view that this discount is directly linked to the Board's failure to act in ways that protect and enhance shareholder value and reward shareholders for the Company's successes.
 
FairPoint's stock trades at a significant discount to its peers. Moreover, its share price is currently at approximately $13 per share, in contrast to the $20+ share price it achieved in early 2015 after the successful conclusion of its unionized-labor force strike and renegotiation of the related collective bargaining agreements ("CBAs"). Shareholders have been extremely patient with the Company's operational turnaround and have suffered, we believe, because the Board has not been vigilant in protecting shareholder value.
 
Operationally, FairPoint has made enormous strides. The Company's revenue is stabilizing and growth is coming. The Company has generated consistent cash-flow and it is well positioned to generate consistent cash-flow going forward.
 
We note that, other than through Angelo Gordon & Co., the Board has de minimis ownership of the Company's shares. Furthermore, in the past 18 months, while tremendous fundamental strides were being made and the stock price fell, the members of the Board have failed to purchase any shares.
 
 
 
 
 
All of this gives us serious reason for concern about the current Board's sense of urgency and alignment of interests with the Company's owners. We suspect that our concerns are shared by a number of other large shareholders, and are of the impression that there has been little action taken, despite these concerns having been voiced directly to members of the Board previously. Accordingly, we believe that it is important that the Board bring focus and urgency to the implementation of potential value-creating initiatives, including (in order of priority):
 
 
·
A sale of the Company;
 
·
Initiation of a recurring dividend to shareholders;
 
·
Development of a company share repurchase program;
 
·
Retirement of outstanding debt; and
 
·
Refinancing of outstanding debt.
 
Maglan has been an investor in FairPoint since its Chapter 11 bankruptcy case, or almost 6 years; aside from insiders, Maglan may be the Company's oldest shareholder. We have witnessed the Company's stock trade below $4 per share and above $20 per share.
 
FairPoint's current enterprise-value is 5x projected 2016 EBITDA, among the lowest in its peer group, while comparable companies are valued in a range of 6x to 9x+ EBITDA.  Therefore, the stock represents a tremendous value play. At a 6x valuation, FairPoint's share-price would be $23, or over 75% higher than the current price. Moreover, since the Company's successful renegotiation of its CBAs and the peaking of the share-price in early 2015, the share price has been on a downward trajectory, losing over 35% of its value. In 2016 year-to-date alone, while the share-prices of peers have gained an average >15%, FairPoint's shares are down over 17%.
 
FairPoint has achieved monumental operational-related accomplishments over the past 5 years, which culminated with the successful renegotiation of the CBAs in 2015, reducing the Company's long-term debt by over $700mm. The Company's bottom-line and top-line achievements are remarkable. The Company is now overdue on turning its attention directly to shareholders, in ways that other wireline telecom companies do.
 
A Sale of the Company
 
With the Company's labor challenges behind it and with it $700mm of long-term debt removed from FairPoint's balance-sheet, the time has come for the Company to be sold or to be merged into a peer. The Company is on solid financial footing and the operations continue to produce improving results. The Company controls a unique and ubiquitous geographic area in Northern New England with a high-quality fiber network.
 
Other, larger participants in the wireline space have been active and acquisitive recently, at prices substantially higher than 6x EBITDA, before synergies. For instance, in 2015 Frontier Communications ("Frontier") acquired $10B of Verizon's wireline assets in three states, at a price that valued those assets at 6.4x EBITDA (before synergies). Previously, Frontier purchased AT&T's wireline assets in Connecticut for 6.2x EBITDA. Frontier and other peers such as, Communications Sales & Leasing (CSAL), Consolidated Communications (CNSL), Windstream Communications (WIN), Cincinnati Bell (CBB) and CenturyLink (CTL) are natural potential acquirors of FairPoint's assets.
 
 
 
 
 
After being closed in late 2015 and early 2016 the high yield market is wide open and the opportunity to do a deal is at hand.  Spreads in the high yield ILEC and RLEC space have compressed dramatically over the past few months and issuers such as Windstream and CenturyLink have tapped the high yield and bank debt markets for financing which have been substantially oversubscribed.
 
In particular, a merger with Communications Sales & Leasing (CSAL), the only wireline REIT in the United States, is the most logical combination and would be tremendously accretive to shareholders of both companies.  CSAL was spun out of Windstream a year ago. Since then, it has achieved an enterprise valuation of 10x EBITDA, yet remains at risk for concentration to almost exclusively one lessee, Windstream. Except for a small acquisition earlier this year, CSAL has not diversified its assets or lessees. Currently, CSAL is valued well above 10x EBIDTA and it can afford, and will benefit from, diversification. We urge the Board to explore a deal with CSAL immediately as it would be beneficial for all parties, especially in a stock for stock transaction.  In the case of a stock for stock transaction we believe the newly acquired CSAL shares would increase substantially in value on an acquisition of FairPoint's assets.
 
Since the Company completed the renegotiation of the CBAs over a year ago, FairPoint management has consistently indicated on quarterly conference calls that the Company is considering strategic initiatives for the benefit of shareholders. However, during all that time, the Company has not taken even one action for the direct benefit of shareholders, and the stock has slid precipitously during that time. We urge the Board to retain financial advisors and pursue a transaction on an expedited basis.
 
Stock-related Activities
 
While exploring the sale of the Company, the Board must be vigilant about generating value for shareholders immediately. With the cash-flow that the Company currently generates it can afford to commence a share repurchase program (based on the fundamental discount of the share-price) and initiate a recurring dividend.
 
At the end of the first quarter, the Company had $23 million of cash and no outstanding borrowings on its revolving credit facility. For 2016, we project that the Company will generate $52 million of free cash flow (FCF).  Accordingly, a dividend of $1.50 per annum will cost the company approximately $40 million- well within the range of comfort.
 
Shareholders of all of the Company's peers benefit from a recurring dividend. Moreover, without paying an equity-related dividend, FairPoint has alienated a large portion of the telecom investment community who specifically seek dividend-paying stocks. Currently, FairPoint's shareholder base is highly concentrated and is devoid of any generic investors. To act more like peers and to possibly usher-in a new shareholder demographic would be a positive for the Company's shareholders and a positive for the Company as a whole. We urge the Board to immediately issue a recurring dividend to shareholders in furtherance of distributing a substantial portion of the Company's FCF.
 
 
 
 
 
Debt-related Activities
 
Based on the same foregoing points, the Company should also consider strategically retiring some of its debt, which currently trades at a discount. Although FairPoint's term-loan trades at par, the Company's bonds currently trade at 96, which is at a substantial discount to its call-protection of 104. At this point, the Company is on very solid ground operationally and financially. Moreover, the Company's debt carries a hefty coupon at 8.75% and its bonds trade at an 8-point discount to the call-protection, and therefore, retiring debt would be an efficient use of capital.
 
Furthermore, the Company's current debt-load was arranged prior to the renegotiation of the CBAs and the resulting $700mm of debt reduction which was thought to be senior to any of the current debt load. Based on the high interest-rate that FairPoint's debt carries, the fact that the high-yield markets are currently open and that the Company is in a much better position debt-wise since it issued its current debt package, the Company should immediately consider refinancing its debt in-line with interest-rates paid by peers, which are all high-yield issuers.
 
* * * *
 
It is high-time that the Company and the Board turn its attention directly to shareholders and, specifically, unlocking shareholder value. We have been a very patient group. If the managerial leadership of the Company is averse to acting in the best interests of shareholders, the Board should act to replace ineffective members who are not effectively executing on their fiduciary obligations.
 
We are willing and ready to discuss the contents of this letter and other value creating initiatives with Mr. Horowitz, Mr. Sunu and the other directors at your earliest convenience.
 
Sincerely,
 
MAGLAN CAPITAL LP
  
   
/s/ Steven Azarbad
/s/ David Tawil
   
Steven Azarbad
David Tawil
Chief Investment Officer
President
 

 
cc:
Edward D. Horowitz 
 
Michael J. Mahoney 
 
David L. Treadwell 
 
Wayne L. Wilson 
 
Peter Gingold 
 
Dennis J. Austin 
 
Michael K. Robinson 
 
Peter Aquino
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