News

RCN Writes Up a Chapter 11

5/30/2004 8:00 PM Eastern

RCN Corp. filed for its expected voluntary Chapter 11 bankruptcy protection last Thursday, a prepackaged deal that will let the Princeton, N.J.-based overbuilder reduce its debt load from $1.7 billion to about $480 million.

RCN filed its bankruptcy petition in U.S. Bankruptcy Court for the Southern District of New York in Manhattan. According to the filing, RCN had assets of $1.5 billion and liabilities of $1.8 billion.

The move was months in the works. In February, RCN started negotiations with bondholders to restructure its debt, a move that would require a Chapter 11 filing.

A significant hint as to timing came on May 21, when RCN chairman and CEO David McCourt had an op-ed piece published in The Wall Street Journal. The article said RCN would file for bankruptcy in “a week or so.”

As part of the filing, RCN reached an agreement with Deutsche Bank Securities to provide about $460 million in financing after its plan of reorganization is approved. The Deutsche Bank loans include a $310 million first-lien facility and a $150 million second-lien facility.

RCN said it has a reorganization plan that would pay secured creditors in full, in cash, and would offer stock in the newly reorganized company to unsecured creditors.

Existing RCN shareholders would receive warrants exercisable into 2% of the new company’s shares.

RCN expects to emerge from bankruptcy in the fourth quarter and bondholders appear to be on board for the reorganization plan. A prepackaged Chapter 11 lets RCN operate as usual, while making it easier to exchange debt for equity.

Recent prepackaged Chapter 11 attempts by cable operators have at least resulted in the companies emerging after reorganization.

Knology Inc. completed an initial public offering of stock in December and restructured its debt through a prepackaged Chapter 11 filing last year.

Rural cable operator Galaxy Cablevision filed a prepackaged Chapter 11 in 2001 and emerged in 2002.

RCN has been negotiating with bondholders for months about reorganizing debt.

RCN suffered much when the telecom bubble burst. Its stock, which traded as high as $72 in 2000, closed at 15 cents in over the counter trading on May 26.

RCN has some good assets: state-of-the-art infrastructure and service in major markets like Washington, D.C., Boston, New York, Chicago and San Francisco. But it financed construction with public debt.

RCN at a Glance
Revenue (2003) $433.5 million
Adjusted EBITDA (2003) $34.8 million
Net Loss (2003) $499.1 million
Net Loss Per Share (2003) $4.50
Telephone Connections (2003) 246,711
Cable TV Connections (2003) 370,187
High-Speed Internet (2003) 174,898
Total Service Connections (2003) 884,403
Source: RCN

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