Cable Operators

RCN Files Reorganization Plan

8/23/2004 10:01 AM Eastern

Troubled overbuilder RCN Corp. filed a reorganization plan with the U.S. Bankruptcy Court for the Southern District of New York Friday, outlining a plan to pay off its creditors in a debt-for-equity swap and emerging from Chapter 11 protection by the fourth quarter of this year.

RCN filed a prepackaged Chapter 11 plan May 27. This reorganization plan, while strikingly similar to the one it filed in May, contains more detailed information.

RCN plans to reduce its debt by about $1.2 billion, to $480 million, mainly by exchanging debt for equity in a newly formed company. Secured debtors -- mainly banks -- will receive payment in full and in cash through a $479.6 million credit facility the company plans to secure upon emergence.

Unsecured creditors -- owed about $1.2 billion -- will either receive stock in the newly formed RCN or cash equal to 25% of their claim up to $12.5 million and stock.

Current RCN shareholders will receive warrants for 2% of the new company’s outstanding shares, but there is a catch: The warrants are exercisable within two years after emergence, but at a strike price of $34.16 per share. RCN last traded in the $34 range in 2000. The company’s shares closed at 5 cents each Aug, 23, down 2 cents apiece.

In addition, the warrants would vest once RCN’s enterprise value reached $1.66 billion, compared with the company’s estimated enterprise value of $1.1 billion-$1.3 billion upon emergence.

In its disclosure statement filed with the bankruptcy court, RCN said it would issue about 36 million shares upon emergence.

March