A committee of unsecured Classic Communications Inc. creditors has submitted a reorganization plan for the bankrupt rural MSO that would include $120 million in bank financing and a debt-for-equity swap in a new entity that would give bondholders firm control.
Classic, which filed for Chapter 11 bankruptcy protection from its creditors in November, has been operating under a $30 million debtor-in-possession financing the company secured in conjunction with its bankruptcy filing.
Since then, the MSO has bled subscribers, finishing the second quarter with 335,000 customers — about 44,000 less than in the same period last year, with most of the defections to direct-broadcast satellite.
Classic's basic penetration rate in those systems is 46 percent, well below the industry average of 60 percent.
According to the plan, filed with the U.S. Bankruptcy Court in Delaware on Aug. 13, Classic would receive a $20 million revolving line of credit from what was described as "the pre-petition bank group," as well as a $100 million term facility loan from that same bank group.
DEBT FOR EQUITY
The biggest of the concessions Classic's creditors would need to approve is the swap of more than $406 million in debt for 100 percent of the newly issued equity in a reconstituted Classic.
As the largest bondholder, OCM Principal Opportunities Fund II, a private equity-distressed debt fund managed by Oaktree Capital Management, would benefit most from that swap.
Details on how many shares each bondholder would get for their debt — or of how many new shares Classic would issue — were not included in the report.
Classic said in a press release that it was evaluating the proposal. Other reorganization plans from different groups of creditors could also be filed with the bankruptcy court, the company said.
According to the plan, the current Classic management group — led by CEO Dale Bennett — would remain intact.
Its new board of directors would consist of Bennett, two members to be elected by a creditors' committee and four members to be elected by OCM.
According to Classic's 10-Q quarterly report, filed with the Securities and Exchange Commission, revenue declined 9 percent to $41.9 million in the second quarter, from $46.1 million a year ago.
Despite that tumble, Classic reported $3.6 million in free cash flow for the period, compared with a $3 million free-cash-flow deficit in 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 expense since it filed for bankruptcy protection in November.
Perhaps more telling is that net losses for the period ballooned to $119.6 million ($6.74 per share) up from a loss of $28.6 million, or $1.61 per share a year ago. Classic said in the filing that the increased losses were due to a $101 million charge the company took to reflect the impairment of its assets.
In the 10-Q, Classic said it commissioned a third-party valuation of its long-lived assets, including its intangible assets as well as its property, plant and equipment. Based on this valuation, Classic said that it reduced the carrying value of those long-lived assets from $154.8 million to $53.7 million.