A group of private-equity firms is to buy the Illinois telephone business of McLeodUSA Inc. for $271 million, as part of the carrier's approved bankruptcy reorganization plan.

by ISP-Planet Staff [July 22, 2002]

McLeodUSA last week agreed to sell Illinois Consolidated Telecommunications Company (ICTC), one of the nation's largest independent competitive local exchange carriers, to Homebase Acquisition Corp. for $271 million.

In line with the terms of its comprehensive recapitalization plan completed in April this year, McLeodUSA agreed to sell ICTC and will set aside the first $225 million of net proceeds to reduce its bank term loans.

Upon the completion of the sale of ICTC, McLeodUSA's bank and other debt will be reduced from $960 million to $715 million, including the elimination of $20 million of mortgage bonds issued by ICTC. The balance of the proceeds, about $46 million, will be retained by the company.

The sale is the last of several planned divestitures for McLeodUSA. The embattled Iowa-based carrier, like so many other startup firms, could not carry its heavy debt load and was forced to restructure its business under bankruptcy protection. It filed in late January after reaching a prearranged reorganization plan with its creditors.

Based in Mattoon, Illinois, ICTC is the fifth-largest independent CLEC in the state, with more than 90,000 access lines and 4,000 DSL subscribers. The related telecom businesses that McLeodUSA is selling as part of the transaction are all located in central Illinois and include Operator Services, Public Services, Consolidated Market Response, and Mobile Services.

The Homebase Acquisition group is a newly formed holding company financed by private equity firms Spectrum Equity Investors and Providence Equity, along with Richard A. Lumpkin, who is to serve as President and Chief Executive Officer of ICTC. Lumpkin was also the principal owner of ICTC prior to its sale to McLeodUSA in 1997.

McLeodUSA still provides integrated communications services, including local services, in 25 states. As part of the deal McLeodUSA and Homebase have entered into operating agreements that establish ongoing strategic relationships covering long distance services, operator services, along with telemarketing and fulfillment services.

Both companies said they do not anticipate any overall changes in the current workforce or any impact on ICTC's service to its customers at this time.

The transaction is subject to state and federal approvals and certain other customary closing conditions, including completion of senior debt financing by Homebase. If all goes well, the deal should close by the end of 2002.

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