Verizon Sued by Idearc Creditors Claiming 2006 Spinoff Led to Bankruptcy

Verizon Communications Inc. was sued by a trustee for Idearc Inc. creditors claiming that the spinoff of the directory publisher saddled it with debt that drove it into bankruptcy.

Verizon, looking to get out of a “dying business,” spun off Idearc in 2006 and removed about $9.5 billion from the company, the trustee said in a lawsuit filed yesterday in U.S. District Court in Dallas.

“Verizon cast Idearc adrift, burdened with an anchor of debt around its neck, insolvent and without adequate resources to survive,” lawyers for the trustee said in court papers.

Idearc filed for bankruptcy last year, unable to stay afloat because of debt it took on in the spinoff, according to the lawsuit. As part of the reorganization plan, a litigation trust was established to benefit bondholders and lenders with claims against Idearc of about $6 billion.

The trustee, U.S. Bank NA, claimed the spinoff was a so- called fraudulent transfer that hindered or defrauded Idearc creditors. Idearc, now named SuperMedia Inc., exited Chapter 11 bankruptcy after its plan was approved in December.

Verizon, the largest U.S. wireless carrier, called the lawsuit “baseless and without merit” and said Idearc was “appropriately valued” when it was spun off.

“Verizon bears no responsibility for Idearc’s bankruptcy almost three years later,” Randal Milch, New York-based Verizon’s general counsel, said in a statement.

The case is U.S. Bank National Association v. Verizon Communications Inc., 10-01842, U.S. District Court Northern District of Texas (Dallas).

To contact the reporter on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net

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