Verizon Communications Inc. (VZ:US), the second-biggest U.S. telephone company, was sued for $2.85 billion in debt and interest stemming from its relationship with bankrupt directory company Idearc.
The suit involves the non-payment of debt evidenced by 8 percent senior notes due 2016 that were issued pursuant to an agreement between Idearc and U.S. Bank N.A. as indenture trustee dated November 2006, according to court filings. The trustee filed the suit in New York State Supreme Court in Manhattan yesterday.
Verizon spun off Idearc, its directory business, in 2006. Creditors contend the spinoff, designed to generate $9.5 billion for Verizon, left Idearc with so much debt it was insolvent and destined to collapse. It filed for bankruptcy 28 months after the spinoff.
“Because Verizon never properly incorporated Idearc (for which it acted as promoter in arranging the indebtedness and was a direct beneficiary thereof) Verizon is liable for the indebtedness at this time,” the trustee said in yesterday’s court filing.
Now known as SuperMedia Inc. (SPMD:US), Idearc completed a bankruptcy reorganization that created a trust to bring lawsuits on behalf of creditors with claims of about $6 billion, according to court papers.
Ray McConville, a spokesman for New York-based Verizon, said yesterday in a phone interview that the company is reviewing the lawsuit.
A federal judge in Dallas in January said Verizon would probably win a lawsuit over the 2006 spinoff of Idearc, rejecting claims that the business was insolvent at the time of the deal.
Idearc had a value of at least $12 billion, and the “only credible evidence” shows the business was solvent when it was spun off, U.S. District Judge A. Joe Fish in Dallas said in the January decision.
Fish ordered U.S. Bancorp, which sued Verizon on behalf of Idearc creditors, to explain why its claims were viable following the ruling on valuation. The judge said it “appears” creditors will be unable to prove their case “so that all of the plaintiff’s remaining legal claims will fail.”
The case is U.S. Bank National Association, solely in its capacity as indenture trustee v. Coticchio, 651132/2013, New York State Supreme Court (Manhattan).
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