EX-99.1 3 a2080632zex-99_1.txt EXHIBIT 99.1 [FAIRPOINT COMMUNICATIONS LOGO] HIGH YIELD BOND & LEVERAGED FINANCE CONFERENCE MAY 20, 2002 COMPANY OVERVIEW FAIRPOINT COMMUNICATIONS, INC. ---------------------- Gene Johnson Chief Executive Officer TOPICS FOR DISCUSSION - COMPANY PROFILE - OPERATIONS OVERVIEW - EXIT FROM CLEC BUSINESS - ACQUISITION STRATEGY - FINANCIAL REVIEW COMPANY PROFILE - FORMED IN 1991 TO CONSOLIDATE RURAL LOCAL EXCHANGE CARRIERS (RLECS) - CURRENTLY OPERATE 29 RLECS IN 18 STATES SERVING OVER 245,000 ACCESS LINES - 2001 RLEC REVENUE OF $225 MILLION AND EBITDA OF $122 MILLION - JUST COMPLETED UNWINDING THE COMPETITIVE LOCAL EXCHANGE CARRIER ENTERPRISE WITHIN FAIRPOINT COMMUNICATIONS SOLUTIONS CORP. COMPANY PROFILE SERVICE OFFERINGS [CHART OF SERVICE OFFERINGS] OPERATIONS OVERVIEW [PHOTO] RESIDENTIAL CUSTOMERS COMPRISE 78% OF TOTAL ACCESS LINES OPERATIONS OVERVIEW [PHOTO] BUSINESS CUSTOMERS ARE PREDOMINATELY AGRICULTURAL, FOREST PRODUCTS, LIGHT MANUFACTURING, AND SERVICES BUSINESSES 85% OF BUSINESS LINES REPRESENT 1- OR 2-LINE CUSTOMERS OPERATIONS OVERVIEW: RLECS RLECs........................................ 29 Local Exchanges.............................. 142 Square Miles................................. 18,940 Access Lines................................. 500-56,000 Per Telco Density Range................................ 1-74 ACCESS LINES PER SQ MILE Average Density.............................. 12.9 ACCESS LINES PER SQ MILE
ACCESS LINES BY STATE [MAP] AS OF 3/31/02 ------------- FLORIDA 54,986 MAINE 51,208 NEW YORK 42,310 WASHINGTON 39,717 OHIO 9,452 VIRGINIA 7,952 ILLINOIS 7,654 KANSAS 6,406 VERMONT 6,215 IDAHO 5,785 SOUTH DAKOTA 4,143 OKLAHOMA 3,667 PENNSYLVANIA 2,897 COLORADO 2,659 ------ TOTAL: 245,051
- Five region management structure - 920 employees deployed from 38 work centers and 27 business offices WHY RURAL? - Stable revenue & EBITDA - Economic barriers to entry by competitors - Low subscriber density - High percentage of residential lines - Capital intensive - Regulatory environment - Rate of return business - Support mechanisms promote universal service - Synergies & cost-saving opportunities WHY RURAL? - State-of-the-art networks - Attractive acquisition opportunities COMPETITION - WIRELESS TECHNOLOGY - ADDITIONAL COMPETITORS - INCREASING IMPACT ON RURAL CUSTOMERS - LONG DISTANCE MOU EFFECT - USSF BECOMING A TARGET - CABLE TELEVISION - CONVERGENCE TECHNOLOGY BARRIER FOR VOICE - BROADBAND IS KEY BATTLEGROUND - DBS NOT A NEAR TERM ISSUE - INTERNET - INSTANT MESSAGING GROWING SIGNIFICANTLY - EVENTUAL VOICE OVER INTERNET (VOIP) - PRIMARILY A THREAT TO LONG DISTANCE MOU REGULATION - REGULATED BY FEDERAL AND STATE JURISDICTIONS - TELECOM ACT OF 1996 AND SIX YEARS OF CONTINUING FEDERAL UNIVERSAL SERVICE AND ACCESS CHARGE REFORM FOR RLECS - STRONG CONGRESSIONAL CONSENSUS FOR RATE STABILITY AND REVENUE SUPPORT - STATE ACCESS CHARGE REFORM INTENDED TO REBALANCE RATES INCLUDING STATE UNIVERSAL SERVICE FUND - NO SIGNIFICANT COMPETITIVE ENTRY AS YET DUE TO RURAL EXEMPTION AND HIGH COST OF ENTRY EXIT FROM CLEC BUSINESS - DECEMBER 2000 - slowed expansion & reduced ongoing capital requirements - NOVEMBER 2001 - decided to exit business - Business model weaknesses - Slowing economy - Capital markets essentially closed, especially for telecom - Execution errors - Ultimately, could not justify incremental investment EXIT FROM CLEC BUSINESS - Sold northwestern assets to ATG & northeastern assets to Choice One - Have substantially exited the business - Debt restructure completed on May 10, 2002 STRATEGIC IMPERATIVES GROW BY ACQUISITION - 1,200 operating RLECs - RBOC divestitures OPTIMIZE REGULATORY - Regulatory trends PROCESSES provide broadband opportunities MAXIMIZE OTHER - Data & Internet services REVENUES - Features penetration - Video OPERATIONAL - Lower operating costs EFFICIENCIES - Economies of scale
CREATING VALUE THROUGH ACQUISITIONS DUE DILIGENCE REDUCES DOWNSIDE RISK --------------------------------- INTENSIVE REGULATORY MANAGEMENT ------------------------- MARKETING EXPERTISE ------------------------- NETWORK AND TECHNOLOGY ATTENTION ---------------------------------- ACCOUNTING/FINANCIAL SOPHISTICATION ------------------------------ FIND THE HIDDEN VALUES STRONG POST ACQUISITION PERFORMANCE (PROPERTIES OWNED > 2 YEARS) ($ IN MILLIONS) [CHART OF STRONG POST ACQUISITION PERFORMANCE] 2 YR PROJECTED EBITDA AT ACQUISITION 2 YR FORWARD ACTUAL EBITDA HIDDEN VALUE
VALUE BOOK VALUE ATTRIBUTED IN MARKET 3/31/02 ACQUISTION MODEL VALUE ---------------- ------------------ ------------ CHOUTEAU CELLULAR (TULSA MSA, RSA 6, RSA4) $ 3,492,618 $ 4,524,438 $ -- ILLINOIS RSA 2 CELLULAR INTEREST 3,969,670 2,595,187 -- ILLINOIS VALLEY CELLULAR RSA 2 SWITCH CO. 1,642,591 1,607,210 -- ORANGE COUNTY/POUGHKEEPSIE MSA 7,125,875 5,605,862 -- SICC INTEREST (RSA 6&7, RSA 8&9) 4,551,800 1,694,843 -- -------------- ----------- ------------ TOTAL ASSETS $ 20,782,554 $16,027,540 $ 53,130,476 ============== =========== ============
OTHER NON CORE ASSETS --------------------- NTELOS STOCK SYRINGA NETWORKS ACCELERNET SOUTH DAKOTA NETWORKS BENTON RIDGE TELEPHONE STOCK ANPI OWNERSHIP REALIZED VALUES
VALUE GAIN/(LOSS) ATTRIBUTED IN ON SALE VS. ACQUISTION MODEL SALE PRICE ACQUISITION MODEL DATE SOLD ----------------------------------------------------------------------- ILLUMINET STOCK $ 9,978,634 $18,626,828 $ 8,648,194 VARIOUS OHIO RSA #3 LTD. PARTNERSHIP 3,051,201 5,188,997 2,137,796 JULY-00 TRIGON HEALTH CARE STOCK 60,392 106,702 46,310 AUGUST-00 FRONTIER STOCK 753,120 1,009,872 256,752 JULY-98 WESTERN SUB RSA CELLULAR 811,800 1,050,000 238,200 JANUARY-99 TACONIC CELLULAR CORP.(HUDSON VALLEY RS 1,929,153 3,500,000 1,570,847 JULY-99 YAKIMA MSA 5,662,980 7,100,000 1,437,020 JANUARY-99 TACONIC TECHNOLOGY (CATV) 8,242,052 8,525,000 282,948 JULY-99 --------------- ----------- ---------------- SUBTOTAL ASSETS SOLD $ 30,489,332 $45,107,399 $ 14,618,067 =============== =========== ================
FINANCIAL REVIEW FAIRPOINT COMMUNICATIONS, INC. ---------------------- Walter Leach Senior Vice President and Chief Financial Officer HISTORICAL GROWTH: 1994 - 2001 Revenue EBITDA (MILLIONS) Access Lines (THOUSANDS) [GRAPH OF HISTORICAL GROWTH: 1994 - 2001] ILEC REVENUES ILEC EBITDA ILEC ACCESS LINES CLEC REVENUES CLEC EBITDA LOSS ILEC+CLEC ACCESS LINES HISTORICAL GROWTH: 1994 - 2001 Revenue EBITDA (MILLIONS) Access Lines (THOUSANDS) [GRAPH OF HISTORICAL GROWTH: 1994 - 2001] ILEC REVENUES ILEC EBITDA ILEC ACCESS LINES CREDIT STRUCTURE - BORROWER UNDER FAIRPOINT SENIOR SECURED CREDIT FACILITY - ISSUER OF NEW NOTES - ISSUER OF EXISTING NOTES [CHART OF CREDIT STRUCTURE] TRADITIONAL TELEPHONE BUSINESS (RESTRICTED SUBSIDIARIES) COMPETITIVE COMMUNICATIONS BUSINESS (UNRESTRICTED SUBSIDIARIES) BORROWER UNDER SENIOR SECURED CREDIT FACILITY FAIRPOINT COMMUNICATIONS SOLUTIONS CORP. SENIOR SECURED CREDIT FACILITY RESOLUTION ----------------------------------------- OUTSTANDING DEBT AS OF 3/31/02: $129,000,000 (INCLUDES INTEREST RATE SWAP OBLIGATIONS) FINAL SETTLEMENT: - $5 MILLION CASH PAYMENT RETIRED $7 MILLION OF DEBT - $28 MILLION OF DEBT AT 8% REMAINS AT FCSC - $94 MILLION FLIPS TO 17% PIK PREFERRED STOCK; NON-CONVERTIBLE, NON-VOTING, MATURES MAY 2011 - NO REDEMPTION RIGHTS PRIOR TO MAY 2011, EXCEPT FOR CHANGE OF CONTROL OR CERTAIN LIQUIDITY EVENTS. PARENT COMPANY OBLIGATIONS - PARENT HAS NO DIRECT OR CONTINGENT OBLIGATION TO THE SOLUTIONS' LENDERS - PARENT HAS NO OBLIGATION TO INVEST ANY ADDITIONAL FUNDS - PARENT IS SIGNIFICANTLY RESTRICTED IN ITS ABILITY TO INVEST UNDER ITS CREDIT AGREEMENT AND BOND INDENTURES - AMOUNTS PERMITTED, AT 3/31/02, UNDER THE CREDIT AGREEMENT - $31 MILLION; UNDER THE INDENTURES - $34.9 MILLION - TAX SHARING AGREEMENT OBLIGATES PARENT TO REIMBURSE ITS SUBSIDIARIES FOR TAX BENEFITS RECEIVED FROM NOLS - PARENT NOL PAYABLE TO SOLUTIONS WAS $7.6 MILLION AT 3/31/02 2001 FULL YEAR FINANCIAL RESULTS CONSOLIDATED REVENUES............... Up 20.2% to $235.2 million CONSOLIDATED OPERATING.............. Up 11.6% to 175.7 million EXPENSES CONSOLIDATED OPERATING.............. Up 11.0% to 123.7 million CASH FLOW (EBITDA) ACCESS LINES SERVED................. Up 3.7% to 245,306 2002 FIRST QUARTER FINANCIAL RESULTS CONSOLIDATED REVENUES............... Up 2.6% to $58.4 million CONSOLIDATED OPERATING.............. Down 8.1% to $35.3 million EXPENSES CONSOLIDATED OPERATING.............. Up 8.2% to $34.8 million CASH FLOW (EBITDA) ACCESS LINES SERVED................. Up 2.0% to 245,051 FAIRPOINT COMMUNICATIONS, INC. Restricted Group Debt Capitalization ($ in Millions)
3/31/02 ---------- DEMAND NOTES $0.4 CURRENT PORTION OF LONG-TERM DEBT 7.2 SENIOR LONG-TERM DEBT (1) 344.5 ----------- TOTAL SENIOR DEBT 352.1 SENIOR SUBORDINATED DEBT 400.0 OTHER SUBORDINATED DEBT 7.0 ----------- TOTAL DEBT $759.1 ===========
--------------------- (1) EXCLUDES $125.8 MILLION OF SOLUTIONS DEBT CREDIT STATISTICS
3/31/2002 --------------------- SECTION 7.11 INTEREST COVERAGE RATIO INTEREST EXPENSE $ 77,894,895 TOTAL COVENANT EBITDA 126,169,476 RATIO 1.62X COVENANT 1.50X SECTION 7.12 LEVERAGE RATIO CONSOLIDATED NET DEBT $ 759,115,918 TOTAL COVENANT EBITDA 126,169,476 RATIO 6.02X COVENANT 6.50X SECTION 7.13 SENIOR LEVERAGE RATIO SENIOR CONSOLIDATED DEBT $ 349,612,570 TOTAL COVENANT EBITDA 126,169,476 RATIO 2.77X COVENANT 4.00X
COMMON EQUITY OWNERSHIP SUMMARY [CHART OF COMMON EQUITY OWNERSHIP SUMMARY] 38.8% T.H. LEE 32.9% Kelso & Company 20.7% Founders/Mgt 7.6% Bank Group CREDIT RISK CONSIDERATION - ATTRACTIVE INDUSTRY DYNAMICS AND GROWTH OPPORTUNITIES - LOW COMPETITIVE THREATS AND HIGH BARRIERS TO ENTRY - FAVORABLE REGULATORY ENVIRONMENT - STABLE REVENUE AND EBITDA - ESTABLISHED ACQUISITION PLATFORM AND DEMONSTRATED INTEGRATION EXPERTISE - EXPERIENCED MANAGEMENT TEAM - SUBSTANTIAL EQUITY BASE PROVIDED BY THOMAS H. LEE AND KELSO [FAIRPOINT COMMUNICATIONS LOGO] HIGH YIELD BOND & LEVERAGED FINANCE CONFERENCE May 20, 2002