Morgan Stanley issues warning about FairPoint

It's not just consumers and workers who are concerned about FairPoint's financial status. Now, Morgan Stanley has issued a report warning of a looming financial crisis for FairPoint.

When Verizon announced that it was selling 1.5 million landlines in Northern New England to FairPoint Communications, the deal immediately raised a host of red flags. It was clear that FairPoint – a small, North Carolina-based company – did not have the resources to handle such a large acquisition, and that it wouldn’t be able to make the investments necessary to plug all New Englanders into the digital age.

Morgan Stanley's new report confirms these concerns. An AFL-CIO press release quotes the financial firm's analysts saying FairPoint "will not generate enough cash to cover its current dividend in 2008, with an increasing deficit in the years that follow."

The Morgan Stanley analysts go on:

We are concerned that FairPoint’s apparent expectation that it will not be able to generate enough cash to pay its current dividend without the proposed merger with Verizon’s NH, ME, and VT lines suggests that the company is in a vulnerable position.

Public officials have taken notice of these warnings. For example, Vermont Public Service Commissioner David O'Brien – whose panel will decide whether to approve the deal – said,

"We consider the financial capacity and ability of FairPoint, as an acquiring company, to be a very important -- if not the most important consideration. We are looking at it very, very closely."

The evidence against the Verizon-FairPopint deal continues to pile up, and in the end it will be impossible for state telecom regulators to ignore.

The point? It's not fair (Speed Matters)

Report doubtful of FairPoint finances (Burlington Free Press)