Focal Communications Corp. announced a plan today to restructure its finances and has filed for bankruptcy court protection as part of its planned reorganization.
Last quarter the Chicago-based CLEC defaulted on its revenue and earnings bank covenants as a large number of its wholesale lines, including those used by ISPs, were disconnected.
Focal, which listed $561 million in total liabilities and stockholder equity at the end of the third quarter, said it reached an agreement with its bank lenders and senior noteholders to exchange approximately $109 million of senior secured debt into new common equity and $65 million of redeemable preferred equity. Focal also noted plans to pay off $15 million of bank debt as part of its reorganization.
The Chapter 11 filing, which was made in the U.S. Bankruptcy Court for the District of Delaware, includes Focal Communications Corp., the parent company, and its operating subsidiaries.
Focal said it anticipates filing a plan of reorganization and disclosure statement within a few days.
“Reaching an agreement with the bank lenders and the convertible noteholders is a major step in our reorganization process. We are committed to completing our reorganization as quickly as possible and are targeting emergence from bankruptcy in the first half of 2003,” said Kathleen Perone, president and CEO of Focal, in a statement.
The company posted a $15.3 million EBITDA (earnings before interest, taxes, depreciation and amortization) loss in the third quarter off $74.7 million in revenue. It reported a net loss applicable to shareholders of $66.8 million, or a $13.35 loss per share. The company ended the quarter with $65.1 million in cash and cash equivalents.
Focal reported consistent sales to corporate customers in the third quarter, but noted significant disconnections in the number of lines provided to its wholesale customers and ISPs. Focal cited “industry consolidation, customer bankruptcies and reduction in customers' growth plans.” The company said it expected that trend to continue and anticipated the loss of 150,000 wholesale and ISP lines in the fourth quarter.
