RealTime IT News

Covad Emerges From Bankruptcy

Santa Claus comes on Dec. 20, not Dec. 25, if you ask any executive at Covad Communications, the troubled provider that filed for bankruptcy on Aug. 15.

The federal court overseeing the Chapter 11 bankruptcy has signed off on the data competitive local exchange carriers (DLECs) $1.4 billion bondholder debt reorganization plan and Covad will emerge from bankruptcy the week of Dec. 20, officials announced Thursday morning.

The news is a huge boost to the telecom industry, which has seen little else but shutdowns and bankruptcy filings that usually end in dissolution.

Martha Sessums, Covad spokesperson, said her company's emergence is not only significant because they are now out of bankruptcy court, but in the way executives were able to keep a hold on the company's operations.

"What's very cool is that we are the first of the telecom companies to exit successfully from bankruptcy with shareholder's maintaining majority interest (in the company)," she said.

Covad's plan was a hard one, but necessary, for bondholders to swallow. Investors included General Electric Capital Corp., Heller Financial, Inc., and Vernon Computer Leasing, Inc. Instead of receiving the $1.4 billion owed in investments, bondholders agreed to take 19 cents on every dollar ($257 million), split $13 million in cash and take a 15 percent equity stake in the company.

Vernon Computers was the only bondholder to reject the reorganization plan.

Covad also got considerable help from one of its former customers, SBC Communications. The incumbent telephone company had originally penned a six-year, $600 million deal that would have meant long-term revenues for Covad, but didn't help them in the short term, when money was needed.

Instead, SBC agreed to pay Covad $135 million to forget the deal ever happened and erased $15 million in advertising fees.

Covad executives maintained then, and Thursday's announcement proves now, that the deal was an easy one to make.