(Updates with details from court papers throughout.)
By Melodie Warner and Katy Stech
Telecommunications provider Otelco Inc. (OTT), which installs
Internet and phone services in rural homes throughout Missouri,
Alabama and New England, filed for bankruptcy protection Sunday to
transfer ownership to some lenders--a move that would reduce its
debtload by roughly $135 million.
Otelco and several affiliates filed for Chapter 11 protection in
Delaware with plans to keep operating while a group of unidentified
senior lenders take over the 270-worker company, which has its
corporate office in 15,000-resident Oneonta, Ala., about 40 miles
northeast of Birmingham.
In court papers filed in U.S. Bankruptcy Court in Wilmington,
Del., Chief Executive Michael Weaver said the company sells cable,
satellite television and both high-speed and dial-up Internet
access throughout rural areas but has lost business to major
wireless carriers who've expanded into those regions. It named
AT&T Inc. (T), Verizon Communications Inc. (VZ) and FairPoint
Communications Inc. (FRP) as major competitors.
Mr. Weaver said that Otelco tried to compete against wireless
competitors by offering bundled packages, but Time Warner Cable
Inc. (TWC) decided to stop using Otelco's services as of Dec. 31.
That contract loss and "recent rulings by the FCC" are expected to
hurt its revenue, Mr. Weaver said in court papers without being
more specific.
The company's restructuring plans would transfer its ownership
to a group of senior lenders that are owed $162 million. Mr. Weaver
didn't identify the senior lenders but said that the group was
arranged by General Electric Capital Corp. and CoBank ACB. Those
lenders were due to be repaid on Oct. 31.
Mr. Weaver said that the company also owes $107.7 million to a
group of subordinated noteholders. The company said last month its
income deposit security units--which consist of common stock and
senior subordinated notes--would be canceled and the existing
senior subordinated debt will be converted into equity.
The IDSes, which trade on Nasdaq, closed Friday at $1.62 and
rose to about $1.70 mid-morning Monday. They have dropped 88% over
the past 12 months.
The company said that the restructuring plan already got the
support it needs from certain creditors, who had until March 15 to
vote on the plan, according to court papers. All of its senior
lenders and holders of more than 96% of its senior subordinated
notes outstanding voted in favor of the plan, the company said.
Otelco formed in 1998 to buy smaller telecommunications
companies that provided service in rural areas, according to court
papers. The company has its own telecommunications infrastructure
that major carriers and customers pay to use.
The company expects to complete its financial restructuring at
the end of the second quarter, according to a press release. The
restructuring plan will need approval from Judge Mary F. Walrath,
who has been assigned to the case.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
Write to Melodie Warner at melodie.warner@dowjones.com. Write to
Katy Stech at katy.stech@dowjones.com.
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