RealTime IT News

Owners Approve McLeod Restructuring

Midwest-based competitive local exchange carrier (CLEC) McLeodUSA Thursday announced a major restructuring deal to get out of bankruptcy court, putting 58 percent of the carrier in the hands of an investor.

Forstmann, Little & Co., out of New York, now finds itself in the driver's seat with two telecommunications businesses as a result of sinking carriers, and it's uncertain what it will do next.

Several weeks ago, Forstmann spent $400 million to take a 39 percent stake in XO Communications, in a bitter custody fight for control of the company.

As part of McLeod's restructuring deal, which was signed off by both sides and awaits an April 5th ruling from the judge presiding over the bankruptcy case, Forstmann becomes the majority shareholder in the CLEC, with Series D and E shareholders making up the next-largest block of voters at 35 percent.

McLeod is one of the largest independent telephone companies in the nation, providing voice and Internet services in 25 states around the country, mostly in America's Heartland -- the Midwest and Rocky Mountain states.

That 25-state footprint is part of what got the carrier in trouble -- using funding raised during the dot com bubble days, McLeod embarked on an ambitious (and prohibitively expensive) fiber and wireless deployment throughout its coverage area. It also spent millions acquiring smaller CLECs along the way.

The moves, which made sense with an ever-present influx of cash, took a turn for the worse after funding dried up, leaving McLeod in the middle of both its network buildouts. Executives filed a pre-negotiated Chapter 11 (restructuring) bankruptcy motion in February.

According to McLeod officials, more than 98 percent of current shareholders signed off on the deal. If approved, the deal will go into effect by the end of April.