Source: The Daily Deal
 
An Illinois judge confirmed a prepackaged plan Thursday, Dec. 15, for Teddy Forstmann's telecom unit McLeodUSA Inc. that swaps bank debt for full ownership.
 
Judge John Squires of the U.S. Bankruptcy Court for the Northern District of Illinois in Chicago approved McLeod's disclosure statement and then confirmed its prepackaged plan, said Tim Pohl, debtor counsel at Skadden, Arps, Slate, Meagher & Flom LLP.
 
Private equity firm Forstmann Little & Co.'s majority stake will be wiped out when the telecom exits from its second bout with Chapter 11 in less than four years.
 
Cedar Rapids, Iowa-based McLeod is aiming to exit from its Chapter 22 with about $75 million in debt in early January, he said.
 
The two objections, one by several Midwestern telecoms that provide integrated services and the other by Yellow Book USA Inc., were resolved at the hearing, he said. They will have no impact on the plan, Pohl said.
 
"The company believes that this restructuring puts it on solid financial footing [because] we're eliminating virtually all of the debt," Pohl said when asked about the prospects of lapsing into a rare Chapter 33. "It's a lot less than the $775 million it had" when McLeod filed it's latest petition on Oct. 28, he noted.
 
A bank group fronted by J.P. Morgan Chase Bank NA will swap its $675 million prepetition loan for the equity and a $100 million term loan, Pohl said. The prepack was approved by lenders holding more then 90% of its debt.
 
No creditors committee was formed, and trade creditors are due to be fully reinstated.
 
J.P. Morgan Chase also provided $50 million in debtor-in-possession financing that will be turned into an exit loan revolver on the plan's effective date. The six-month DIP is priced at LIBOR plus 400 basis points.
 
The plan incorporates the right for McLeod to sell noncore assets that should generate about $25 million to bring the debt down to $75 million, Pohl said.
 
The telecom plans to sell its Cedar Rapids headquarters and an airplane for about $10 million so it can pay down debt.
 
Forstmann invested $1.2 billion, starting in McLeod in 1999, to acquire a 12% stake and injected at least a further $100 million to hold a 55% interest when it emerged from its first Chapter 11. The PE firm owned 64.6% of the equity on Feb. 28, according to its latest filing with the Securities and Exchange Commission.
 
McLeod is one of the largest telecoms in the U.S. and posted $160 million in second-quarter revenue on its services in the Midwest and the West. The company piled up debt, however, when it tumbled into Chapter 22.
 
Chief restructuring officer Stanford Springel of turnaround firm Alvarez & Marsal LLC said in documents that he doesn't foresee a repeat of the problems that forced McLeod to seek bankruptcy a second time.
 
The telecom was overly optimistic the first time around, when it predicted a 40% hike in revenue over three years to $1.5 billion by 2005, but it has scaled down this forecast to $632.6 million, Springel said.
 
"Confirmation of the plan is not likely to be followed by the liquidation or further reorganization of the reorganized company," Springel said in documents. "These are two very different cases."
 
McLeod filed its first Chapter 11 on Jan. 31, 2002, and exited in just 75 days on April 16, 2002.
 
Miller Buckfire & Co. LLC and Gleacher Partners LLC were McLeod's bankers prior to its latest petition.
 
Besides Pohl, Peter Krupp and Felicia Gerber Perlman are also Chicago debtor counsel at Skadden.