After postponing its second quarter conference call twice, Focal Communications Corp. (www.focal.com) late yesterday afternoon unveiled a $430 million recapitalization plan that the company says will fully fund it to free cash flow positive. The recapitalization plan was announced during a conference call that discussed the company’s second quarter results, which were released on Wednesday, and other strategic moves Focal is making to strengthen its operations.
The recapitalization consists of $150 million in private investment, the exchange of $280 million of high-yield debt for equity, and amendment of the company’s senior bank credit facility and a reverse stock split.
The $150 million infusion of private investment comes from three of the company’s initial investors: Madison Dearborn Parnters LLC, Frontenac Co., and Battery Ventures. The investment will consist of $50 million worth of convertible preferred stock and a $100 million secured convertible note.
Focal also arranged with several of its high-yield bondholders to exchange $280 million in principal of its high-yield bonds for the receipt of approximately 35 percent of the fully diluted shares of Focal common stock. This transaction will reduce by $500 million Focal’s outstanding debt and interest expense through the maturity of the bonds.
And Focal received approval to amend terms of its senior bank credit facility, enabling the recapitalization to take place and providing for $225 million in borrowing capacity. Prior to the recapitalization, only $150 million was available.
Other strategic moves being made by Focal include consolidation of its voice and data business units into one, in an effort to streamline delivery of services to enterprise and ISP customers. This consolidation will results in the layoff of 175 employees during the third quarter.
Focal has also decided to focus on its core 22 markets and is canceling plans to enter San Diego and St. Louis. The company plans to complete its buildout in Miami, however.
And Focal is scaling back its plans to provide managed Internet access services in 36 markets, instead opting to keep the offering in the 15 markets where its currently commercially available and complete market development in the three cities where it is now under development.
Focal says it will cease DSL operations in the majority of its markets, with the exception of more established ones such as Chicago, New York, Philadelphia and San Francisco.
