Bankrupt Classic Communications Inc.'s secured creditors took their shot at submitting a reorganization plan for the troubled MSO, less than a month after a committee of unsecured creditors submitted their plans.
The secured creditors — led by Goldman Sachs Credit Partners, a unit of New York investment bank Goldman Sachs & Co. — have submitted a plan that would pay off secured creditors in full, and pump about $120 million into the company through a preferred stock offering and a new line of credit.
Understandably, the secured creditors' plan appears to favor lenders — who would receive practically all of what is owed them, in either cash or stock — while the unsecured creditors' plan was skewed toward appeasing bondholders, its largest component.
The Goldman plan differs from the unsecured creditors' plan in that the latter called for $120 million in loans and a 100 percent swap of new equity for debt in a new Classic.
Goldman had objected to the unsecured creditors' proposal, which was submitted on Aug. 23, claiming it "describes a plan which is unconfirmable and does not contain adequate information."
But the Goldman reorganization plan — filed in U.S. Bankruptcy Court in Delaware on Sept. 13 — fails to mention the $406 million in bond debt that Classic owes.
According to the bankruptcy court documents, Goldman proposes two scenarios, one of which includes a $100 million preferred stock offering, convertible into 94 percent of Classic's equity, and a $20 million line of credit.
In the event that the preferred stock offering is not approved, Classic would have to make due with a $30 million line of credit. Creditors would receive equity in the newly reorganized company.
The money would be dispersed as follows: In a preferred offering, $50 million of the proceeds from the stock would go to pay off the remainder of Classic's $30 million debtor-in-possession financing. After the DIP is satisfied, the remaining money — and another $50 million — would go toward the cable company's capital expenditures, including providing digital-cable service and cable-modem service to Classic customers.
Unsecured creditors would receive new unsecured notes equal to 100 percent of their original claim and would be allowed to participate in the preferred offering, up to $35 million.
Holders of subordinated notes would receive 8 percent of new Classic common stock in the event of a preferred offering. If no preferred offering is consummated, they would get 12 percent of new Classic common stock, as well as warrants to buy additional shares in the future.
Secured creditors would receive 88 percent of the new shares if there were no preferred offering.
$13.33 equity peg
The filing did not identify which bank or banks would provide the credit facility. But Goldman said 8 million shares in Classic would be authorized, with 5 million shares issued.
Given that the $100 million would be convertible into 94 percent of outstanding shares — or about 7.5 million shares — the secured creditors are valuing Classic's equity at about $13.33 per share.
Classic shares, which trade over the counter, have been sold at about 1 cent per share for months.
Mark Collins, an attorney for the secured creditors group, did not return phone calls for comment. A hearing concerning approval of the secured creditor plan is set for Oct. 4.
The secured creditors make no mention of what would happen to Classic's current management team, including CEO Dale Bennett.
The reorganization plan said the company's new board of directors would consist of three outside members and two members designated by the preferred offering investor, who has not been identified.
Classic filed for Chapter 11 bankruptcy in November, listing assets of $711.3 million and liabilities of $641.8 million. While the company has been operating since then, it has been bleeding subscribers.
According to its 10-Q quarterly financial statement, Classic had 335,000 subscribers at the end of the second quarter, ended June 30. That's about 44,000 less than in the same period last year. The company's revenue was down 9 percent in the quarter, to $41.9 million from $46.1 million in the prior period.
Despite that decline, Classic reported $3.6 million in free cash flow for the period, compared to a $3 million free-cash-flow deficit for the prior year. Free cash flow is defined as earnings before interest, taxes, depreciation and amortization, after capital expenditures and interest payments have been made.
That figure could be misleading, mainly because Classic has had no interest expenses since it filed for bankruptcy protection in November.