Troubled cable overbuilder RCN Corp. said it is in negotiations to restructure its debt, and that any agreement would likely take place through a Chapter 11 bankruptcy reorganization.
RCN said in a statement issued late Feb. 14 that it would not make interest payments on its 10.125% senior notes, a decision that could trigger defaults on all of its debt — about $1.1 billion in bond obligations and $520 million in bank facilities.
But RCN said it reached a forbearance agreement with lenders and bondholders, who agreed not to declare an event of default until at least March 1.
The interest payment on the 10.125% notes was due on Jan. 15 and at that time, RCN said it was negotiating with bondholders concerning payment, a move that many observers saw as a tactic to get bondholders to accept a debt-for-equity swap.
The 30-day grace period to make the $10.3-million interest payment expired on Feb. 13.
RCN had said in the past that it had sufficient cash to make the payment.
In a statement, RCN said it hoped the continuing negotiations would lead to “a successful consensual financial restructuring plan in the near term.”
But RCN also said it “expects any financial restructuring to be implemented through reorganization under Chapter 11.”
That Chapter 11 filing would be at the holding-company level — RCN's market operating subsidiaries would not be part of the bankruptcy filing, according to the statement.
RCN has set up a Web site (rcntomorrow.com) to provide updates to the restructuring process.
“We expect to emerge from any consensual restructuring as a stronger, more viable and more competitive company, positioned for long-term success,” RCN chairman and CEO David McCourt said in a statement.
About two weeks ago, RCN hired a restructuring specialist, former WorldCom executive John Dubel, as chief operating officer.
Once a high flyer in telecom, RCN has fallen on the same hard times that hit other overbuilders when the bubble burst. RCN has good assets — state-of-the-art infrastructure and service in major markets like Washington, D.C., Boston, New York, Chicago and San Francisco — but financed construction with public debt.
As debt began to mount, shares plunged from a high of about $75. RCN was down 38.8% (31 cents) to 49 cents on Feb. 17, dipping another 9 cents to 40 cents on Feb. 18.
Pepco Holdings Inc., RCN's partner in the Washington, D.C., area joint venture Starpower Communications, has said it wants out. It had about 48,000 customers as of Sept. 30.