Otelco Inc. (OTT) is a full service telecommunications provider, offering a wide array of communication services including telephone, long distance, Internet, broadband services and television in areas of North Central Alabama, Maine, Western Massachusetts, Central Missouri, New Hampshire, Western Vermont and Southern West Virginia whose local community involvement dates back to the early 1900’s.
OTT today announced a restructuring transaction for financial relief by approximately $135 million.
Otelco has reached an agreement with its senior lenders to amend and extend the terms of its current senior financing through April 2016 with IDS units to be cancelled and the existing senior subordinated debt will be converted into equity. The Company currently has over $32 million in cash and sufficient liquidity to consummate this transaction.
In April 2012, Otelco announced the loss of a material contract to provide services to Time Warner Cable (TWC). The Time Warner contract expired on December 31, 2012 and TWC elected to begin performing services in-house rather than renewing the contract with Otelco. In addition to the loss of the TWC contract, recent rulings by the FCC will also continue to negatively impact the Company’s revenues. After consulting with advisors, the Board of Directors and senior management have concluded that reducing the Company’s debt and improving its capital structure will be best implemented through a “pre-packaged” chapter 11 filing, which has the support of the Company’s senior lenders.
Before making its chapter 11 filing, Otelco will seek the support of holders of record on February 8, 2013, of its senior subordinated notes (including notes held in the form of IDSs) for the proposed plan through a solicitation process that will occur in February, 2013. The voting process will take approximately 35 days. After that period, Otelco intends to voluntarily file its reorganization plan with the U.S. Bankruptcy Court in Delaware.
Michael Weaver, CEO of Otelco, stated:
This filing will have no impact on our operations. Our offices are open, all our employees are working and we’re still providing excellent service to all our customers. We hope to be in chapter 11 for a brief period of time. We have significant liquidity and it’s business as usual for us.
Our proposed plan, with the extension of the existing senior credit facility, will reduce total debt, simplify our capital structure and strengthen our balance sheet. I am confident that this restructuring represents the best possible outcome for the Company and our IDS unit holders, and I highly encourage the IDS holders to support it with a ‘yes’ vote during the solicitation.
Conference call to discuss the planned chapter 11 filing with Otelco’s investors will take a place on Friday, February 1, 2013, at 1:00 p.m. (Eastern Time).