McLeodUSA emerges from Chapter 11 with $50 million exit facility

By Caroline Salls

Pittsburgh, Jan. 9 - McLeodUSA Inc. emerged from bankruptcy after its joint prepackaged plan of reorganization became effective on Friday and it entered into a new $50 million credit facility, according to a company news release.

The company also named Royce J. Holland chief executive officer and named a new board of directors.

The U.S. Bankruptcy Court for the Northern District of Illinois confirmed the plan on Dec. 16 after more than 90% of voting creditors accepted it.

Under the plan, the company significantly deleveraged its balance sheet by eliminating about $677 million in debt, plus interest, and reducing its annual interest expense by more than $50 million. The company's remaining debt was reduced to about $73 million using proceeds from the recent sale of its headquarters.

The company's $677.3 million of secured junior bank debt will be converted into 100% of the equity of the reorganized company, and the existing $100 million in secured senior bank debt will be canceled and replaced with a new $100 million term facility.

Treatment of creditors under the plan will include:

• Holders of other secured and general unsecured claims will receive 100% recovery though reinstatement of their claims;

• Holders of $100 million in junior secured pre-bankruptcy lender claims will receive 100% recovery in cash;

• Holders of $677.28 million in senior secured pre-bankruptcy lender claims will receive 27% to 38% recovery in 100% of the new stock of the reorganized company, plus cash for fees and expenses required under the credit agreement.

"As we emerge from Chapter 11, we will be able to put an even greater focus on strengthening our sales, operational and financial performance," chief restructuring officer Stan Springel said in the release.

"Our new $50 million credit facility will provide continued assurance to our customers, employees and vendors about our strong liquidity position," Springel said in the release.

McLeodUSA has about $50 million of debt outstanding and has entered into a new credit facility that provides it with an additional $50 million, comprised of a $40 million revolving credit facility and a new $10 million term loan.

The new five-year facility replaces the company's $50 million debtor-in-possession facility from JPMorgan Chase Bank, NA. Interest on the new facility is Libor plus 750 basis points, with a 50 bps unused portion fee.

"It is a testament to our employees, customers and vendors, and their continued confidence in our business, that we were able to emerge from bankruptcy in only 10 weeks, without disruption and while continuing to pay our trade creditors in full," acting chief financial officer Joe Ceryanec said in the release.

Consistent with the plan, McLeodUSA's former preferred and common stock has been canceled, and the company's stock will no longer be publicly traded.

According to the release, Holland has more than 30 years experience in the telecommunications, energy and engineering/construction industries. Most recently, Holland was co-founder, chairman and CEO of Allegiance Telecom, Inc., which was acquired by XO Communications in 2004. Previously, he was president and a co-founder of MFS Communications Co., Inc., which was acquired by WorldCom in 1996.

The company also named a new board of directors that includes Holland, John Hank Bonde, Donald C. Campion, Eugene Davis, John D. McEvoy, Alex Stadler and D. Craig Young.

McLeodUSA, a Cedar Rapids, Iowa-based integrated communications services company, filed for bankruptcy on Oct. 28. Its Chapter 11 case number is 05-63230.

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