McLeodUSA Inc. (www.mcleodusa.com) has gained approval to eliminate $3.3 billion in high yield debt and $325 million in interest as part of a comprehensive refinancing plan that will allow the competitive carrier to emerge from bankruptcy.
The Iowa-based company announced April 5 the U.S. Bankruptcy Court for the District of Delaware entered an order confirming its pre-negotiated reorganization plan filed in January. The majority of senior note holders and preferred stock holders have approved the plan.
McLeodUSA expects the plan to become effective April 16. A spokesman did not immediately return a phone call to discuss when the company officially expected to emerge from the bankruptcy court.
The reorganization plan not only will eradicate a mountain of debt, current investor Forstmann Little (www.forstmannlittle.com) will inject $175 million in new equity, becoming a 58 percent shareholder in the company.
Other terms of the plan include:
 Senior note holders will receive a pro rata share of a cash payment up to $670 million.
 Bondholders will receive a pro rata share of a cash payment of $175 million of convertible preferred stock, representing 15 percent of common stock. Under the plan, the bondholders will receive five-year warrants to buy an additional six percent of common stock for $30 million.
 In additional to injecting $175 million, Forstmann Little will receive options to buy six percent common stock for $30 million.
 The company’s series D and series E preferred stock will be converted into roughly 35 percent of the reorganized common stock while the series A preferred stock will be converted into approximately 10 percent of the reorganized common stock.
Due to pending securities litigation against McLeodUSA, the company said it would not be able to fully distribute the new common stock to common stockholders immediately once the plan becomes effective. Until the issues are resolved, the bankruptcy court requires that a portion of the common stock is reserved, McLeodUSA stated.
The competitive carrier expects to begin trading its common stock on the Nasdaq National Market (www.nasdaq.com) shortly after the plan goes into effect.
