Local telephone company McLeodUSA said Thursday it filed for bankruptcy -- the latest in a rash of bankruptcies in the battered telecommunications industry -- with a reorganization plan that will erase about $3 billion in debt.
The Chapter 11 petition was filed in U.S. Bankruptcy Court in Delaware and listed assets of $4.79 billion and total debt of $4.57 billion. Chapter 11 bankruptcy protects companies from debts or liabilities during reorganization.
As part of the restructuring, buyout firm Forstmann Little and said it invested an additional $175 million in the telecoms firm, making it the largest shareholder of McLeodUSA, with an approximate 58 percent holding.
The bankruptcy filing marks the latest meltdown in the telecommunications sector, which was rattled by the bankruptcy of Global Crossing earlier this week, and dismal growth forecasts from companies such as Qwest Communications and AT&T.
McLeod stock has lost almost all of its value, closing at 18 cents on Wednesday on Nasdaq -- far below its 52-week high of $21.125 and off about 99 percent from an all-time high of about $35 in March 2000.
The pre-negotiated filing, which only includes the parent company McLeodUSA and none of its subsidiaries, will not disrupt service, customers or employees and is similar to the restructuring announced in December, McLeod said.
Among the top creditors listed were United States Trust of New York, which is owned by Charles Schwab, Think Fast Consulting, based in Chicago, and Travel and Transport of Iowa.
McLeod said it did not need and did not expect to obtain debtor-in-possession financing. The reorganization, the fourth-largest in the telecommunications sector, is expected to take effect in the second quarter.
Under the pre-negotiated reorganization plan, McLeodUSA's bondholders will receive up to $670 million in cash, $175 million of preferred stock convertible into 15 percent of the reorganized company's common stock, and five-year warrants to purchase an additional 6 percent of the company's stock.
Holders of the McLeod's common stock will retain about 17 percent of the shares of the reorganized McLeodUSA.
McLeod said $100 million of the bondholder's cash will come from Forstmann Little's fresh investment.
An ad hoc committee of bondholders, which holds 23 percent of its bonds, voted unanimously in favor of the plan, which will eliminate $3 billion of bond debt.
The company's plan also has the support of investors holding about 45 percent of its preferred shares, including funds managed by Forstmann Little.
Clark McLeod will remain chairman of the board of directors and Stephen Gray will remain president and chief executive. Chris Davis will stay on chief financial officer, McLeod said.
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