Covad $75 million convertible talked at 2.5-3.0% yield, up 18-23%

By Ronda Fears

Nashville, March 4 - Covad Communications Group Inc. returned to tap the convertible market Thursday with $75 million of 20-year convertible notes talked to yield 2.5% to 3.0% with an 18% to 23% initial conversion premium.

Banc of America Securities is sole bookrunner of the Rule 144A deal, which was scheduled to price after Thursday's close.

The senior notes will be non-callable for five years with puts in years five, 10 and 15.

Holders will have full dividend protection.

A $25 million greenshoe is available.

The Santa Jose, Calif.-based digital subscriber line service provider said proceeds would be used to pay down debt held by SBC Communications and for general corporate purposes.

On Wednesday, Covad announced it would buy GoBeam Inc., a privately-owned provider of voice over internet protocol services in a stock transaction expected to close in May.

"Our acquisition of GoBeam not only accelerates Covad's entry into the growing [voice over internet protocol] market, but it also is a major step in transforming Covad from a broadband company into an integrated voice and data communications provider," said Charles Hoffman, Covad chief executive officer.

Earlier this week, a U.S. federal appeals court struck down a Federal Communications Commission rule that required traditional local telephone companies to share their networks with rivals and upheld the FCC decision to phase out line sharing, where a consumer can have one provider for high-speed internet access and another for traditional telephone service. Both decisions were blows to Covad.

Covad attorney James Kirkland said the circuit appeals court decision reversing the FCC's decision was "misguided and flawed, but not unexpected." He said an appeal is expected to go to the U.S. Supreme Court.

Covad previously had a convertible bond that was erased by its 2001 bankruptcy.

On exiting bankruptcy in late 2001, Covad eliminated $1.4 billion of outstanding debt by divvying cash and a 15% equity stake in the company to bondholders. Covad paid $257 million, or 19 cents on the dollar, to take out the bond debt, plus some $13 million in other cash and issued about 35 million shares of stock to the bondholders.

Covad also issued about 9 million shares to settle class action lawsuits and other claims against the company. Pre-existing shareholders retained about 80% of the equity ownership of the company.

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