Mpower's Recapitalization Deal

The company will spend $19 million in cash to retire $583.4 million in debt and proferred stock as part of its voluntary Chapter 11 bankruptcy filing. Debt holders will end up with 85 percent of the company.

by Clint Boulton of internetnews.com [February 26, 2002]

Broadband communications firm Mpower Holding Corp. has made progress on a recapitalization plan to remove much of its long-term debt and all of its preferred stock.

The Rochester, N.Y. company said Monday that it reached agreement with a committee that accounts for some 66 percent of the outstanding principal amount of its Senior Notes due 2010. Under the recap plan, Mpower will use $19 million of its approximately $150 million cash on hand and will issue common stock to eliminate $583.4 million in debt and preferred stock, as well as the associated $50 million of annual interest expense related to the 2010 Senior Notes and the $15 million in annual dividend payments on the preferred stock.

Mpower Chief Executive Officer Rolla P. Huff said the deal will help his firm achieve better financial health while still tending to the broadband needs of its customers.

"We believe this plan represents the best approach to restructuring the company's debt in an efficient and timely manner, and are pleased that we can accomplish it by using equity and only $19 million in cash to retire 92 percent of our long-term debt and preferred stock," Huff said.

Mpower asked the remaining 2010 Senior Noteholders to also enter into the voting agreement by March 19, 2002, the date Mpower expects the solicitation period to expire. With Monday's pact, each 2010 Noteholder who signs a voting agreement in support of the recapitalization plan by the end of the solicitation period will receive their pro-rata share of $19 million in cash, which represents 5 percent of the outstanding amount of the 2010 Senior Notes.

"This agreement is an important first step in the financial restructuring of the company. With a greatly strengthened balance sheet under the proposed recapitalization plan, $200 million in recurring revenue, and more than 117,000 customers, we believe Mpower would be among the better financially situated CLECs in the industry and in a better position to secure additional financing," added Huff. "We are pleased to report that we are currently engaged in ongoing discussions with current and new equity holders, as well as lenders, to pursue additional financing opportunities to support the continued growth of Mpower."

Mpower also said Monday that it is ceasing operations in Charlotte, N.C., where it currently serves approximately 500 customers.

Late on Monday, the Wall Street Journal reported that "people involved in the negotiations" said that the deals had been largely accepted, and that bondholders would receive 85 percent of the restructured company, while preferred stockholders would get the remaining 15 percent.

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