Alestra extends note exchange, to fight suit

New York, Sept. 25 - Alestra S de RL de CV said it extended the expiration date for its tender offer, exchange offer and solicitation of consents for a prepackaged U.S. Chapter 11 filing for its $270 million of 12 1/8% senior notes due 2006 and $300 million of 12 5/8% senior notes due 2009.

The expiration date is now 11.59 p.m. ET on Oct. 9, moved back from 11.59 p.m. ET on Oct. 2.

Alestra said it is granting withdrawal rights up to but not including Oct. 9 to holders who have previously tendered or who subsequently tender.

As of Sept. 25, $21 million of the 12 1/8% senior notes and $18 million of the 12 5/8% senior notes had been tendered.

Alestra also said it intends to "contest vigorously" a complaint filed against the company, its equity holders and the indenture trustee for the notes by W.R.H. Global Securities Pooled Trust, described as "Huff".

"We believe that there is no merit to any of the claims in the complaint and we intend to contest vigorously the action and continue to pursue the consummation of the offers and the solicitation of acceptances to the U.S. prepackaged plan of reorganization," Alestra said in a filing with the Securities and Exchange Commission.

The Huff complain, filed in the United States District Court for the Southern District of New York, seeks damages and to enjoin Alestra from completing its exchange offers and consent solicitations.

Alestra said Huff claims that the proposed amendments to the indentures governing the existing senior notes adversely affect the ranking of the existing senior notes and that any amendment requires approval of 100% of holders, that the prospectus fails to disclose that the existing senior notes have already been accelerated because an event of default that triggers automatic acceleration has already occurred and that Alestra has admitted in generally its inability to pay its debt, and that the prospectus contains materially false and misleading statements or omits material facts.

Alestra said it disputes that the proposed amendments will affect the ranking of the notes, it disputes that the existing senior notes have been accelerated or that it has admitted an inability to pay its debts generally, and it disputes that the prospectus is false, misleading or omits material facts.

As previously announced on Aug. 21, Alestra, a San Pedro Garza Garcia, Mexico telecommunications company, is offering either $1,060 principal amount of new senior notes due June 30, 2010, $550 in cash or a combination for each $1,000 principal amount of its outstanding senior notes due 2006 and 2009.

Alestra said it is making the exchange offer to deal address its financial problems.

"We believe that the completion of the restructuring, whether through the offers or the U.S. prepackaged plan, is critical to resolving our liquidity crisis and ensuring our continued viability," the company said in a filing with the Securities and Exchange Commission.

Alestra made interest payments on the notes from issuance in 1999 through May 15, 2002 using the $194 million of proceeds placed in escrow.

It has not made any subsequent interest payments and the escrow is exhausted. The notes require annual debt service of $74.3 million.

"We do not expect cash flows from our operations to be sufficient to make upcoming interest payments on the existing notes unless we receive additional funding from an outside source," Alestra added.

Completion of the tender and exchange is conditional on at least 90% of the outstanding principal amount of each series of existing notes being tendered.

The interest rate of the new notes will be 8% if the participation in the offers is more than 90% but less than 95% and 9% if the participation in the offers is 95% or more.

Holders who tender their notes will not receive any accrued and unpaid interest on those notes.

The new notes will accrue interest from June 30, 2003. The notes will also have fixed principal amortization beginning on December 30, 2005.

Up to $392 million of the new notes could be issued. The cash portion will be financed by a $100 million capital contribution from Alestra's equity holders, 51% coming from Onexa and 49% from AT&T plus an additional $8.5 million payment by AT&T and cash generated from operations.

Alestra is also seeking consents to a prepackaged bankruptcy filing, which the company could make if it has sufficient consents but does not reach the levels required for the exchange to be completed.

The dealer manager for the offer is Morgan Stanley (Simon Morgan at 212 761-2219 or Heather Hammond at 212 761-1893). The information agent is D.F. King (212 269-5550).

In February Alestra launched a previous exchange offer. In that offer, holders would have received for each $1,000 principal amount of the 2006 notes $970 principal amount of new senior step-up notes due May 15, 2008 and an early consent payment of $30 principal amount of those new notes or a cash payment of $400 and an early consent payment of $30. The senior step-up notes due May 2008 would have paid cash interest of 5.0% until May 15, 2006 and 7.0% thereafter. For each $1,000 principal amount of the 2009 notes, holders would have received $970 principal amount of new senior step-up notes due February 15, 2011 and an early consent payment of $30 principal amount of those new notes or a cash payment of $400 and a cash tender offer early consent payment of $30. The senior step-up notes due February 2011 would have paid cash interest of 5.0% until August 2006 and 8.0% thereafter.

The previous exchange was terminated on June 20 at which point $144 million or 53% of the 2006 notes and $95 million or 32% of the 2009 notes had been tendered and not withdrawn.

During the offer, Alestra began negotiations with a group of noteholders. The noteholders said they would not support or participate in the first offers, Alestra said in the SEC filing.

Alestra added that it believes the current offer reflects many of the terms what it believes was a verbal agreement in principle although it did not reach agreement on all the final terms.

Alestra added that UBS Warburg, Fintech Advisory and affiliates of Banco Inbursa, SA de CV have said they intend to tender or recommend to their clients that they tender their existing notes in the offers.

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