Covad Communications Group Inc. will file a pre-negotiated Chapter 11 bankruptcy by mid-August, helped along by a potential elimination of its $1.4 billion debt.
Its proposed debt restructuring plan already has been approved by bondholders representing a majority of the outstanding accreted value of the bonds, the company reports.
Under the deal, bondholders would exchange their bonds for a combination of cash and preferred stock. The cash portion would run 19 cents on the dollar for the amount of the accreted value of high-yield and convertible bonds, Covad says.
The company says the preferred equity would have a $100 million liquidation preference, convertible into about 33 million common shares or 15 percent of the company's fully diluted outstanding common stock — in a "pro forma effect to the conversion." Covad can convert the preferred stock under certain conditions, including securing additional funding. Holders can convert the preferred into the same amount of common stock at any time, Covad says.
Finally, the company expects to pay a total of $283.3 million to bondholders, leaving Covad with about $250 million in cash, pro forma, which Covad says is enough to fund operations into the beginning of 2002.
Once the transaction is done, Covad says it will need $200 million more to get into a positive cash flow position, which should occur in third quarter 2003.
The company says the transaction "would be implemented through a voluntary pre-negotiated Chapter 11 filing" by Covad, and its operating companies, providers of DSL services, aren't expected to be included in the proceedings and will continue as usual, it says.