Allegiance Telecom Inc. must cut its debt in half by the end of the month or obtain a waiver to avoid a default on its senior credit agreement.
If Allegiance defaults on an amendment requiring the phone and data company to slash its $1.2 billion debt load to $645 million by April 30, it may be forced into bankruptcy. Or its senior lenders could decide another fate.
A default “may result in a foreclosing proceeding or a voluntary or involuntary bankruptcy filing,” Allegiance stated in a 10-K filing with the Securities & Exchange Commission.
“We are in ongoing negotiations,” an Allegiance spokesman told XCHANGE, declining further comment.
At the end of last year, Allegiance had $284.3 million in cash and short-term investments, but the company is not generating positive cash flow from operations.
Last month Fitch Ratings, one of the agencies rating the public debt of U.S. companies, downgraded Allegiance to a level indicating some type of default is probable.
“We think they are going to have a hard time meeting the obligations to reduce debt that are in the amended credit agreement,” says Fitch Senior Director John Culver. “Somehow they have to access the capital market” to raise equity or debt. “That could be quite a challenge.”
For the year ending Dec. 31, 2002, Allegiance posted $771 million in revenue. It posted a $71.6 million loss on earnings before interest, taxes, depreciation and amortization.
