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Covad Claws Free of Bankruptcy

Long-suffering data competitive local exchange carrier (DLEC) Covad Communications clawed its way out of bankruptcy Thursday, wiping the slate clean of $1.4 billion in high-yield and convertible bondholder debt through a deal negotiated with investors on Dec. 13.

Under the deal, investors, including General Electric Capital Corp. and Heller Financial Inc., agreed to take 19 cents on the dollar ($257 million), split $13 million in cash and take a 15 percent equity stake in the company. Covad also issued about 35 million shares of common stock to settle class action lawsuits and other claims, though pre-existing shareholders will retain about 80 percent of the company.

The plan was made possible in large part by a deal Covad struck with SBC Communications in November, under which the two companies dissolved an agreement they had reached last year. Under the November deal with SBC, Covad received an immediate $135 million cash infusion and was able to eliminate a $15 million co-marketing fee. In exchange, Covad gave up nearly $600 million in resale business guaranteed by SBC.

While the agreement did not increase SBC's approximately 5 percent ownership in Covad, it does allow the telecommunications giant to offer a more diverse portfolio of DSL products to customers inside and outside of its 13-state region.

"Major steps have been completed in the revitalization of Covad," said Charles E. Hoffman, president and chief executive officer of Covad. "A year ago, Covad refocused the company to accommodate the change in capital markets and began reducing expenses. We have now finished restructuring our balance sheet, are fully-funded and essentially debt free. We are focused on refining our business plans to continue to innovate with new services, strengthening our distribution channels, maintaining quality service and financial discipline and keeping the customer at the center of what we do."