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The Deal: Otelco Seeks Equity in Ch. 11

NEW YORK (TheStreet) -- Wireline telecommunication services provider Otelco Inc. has filed for bankruptcy with a prepackaged plan that would swap its subordinated debt for equity.

Shares fell 0.6% to $1.71 by mid-day on Tuesday.

The Oneonta, Ala., rural telecom provider in Alabama, Maine, Massachusetts, Missouri, New Hampshire, Vermont and West Virginia filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware in Wilmington on Sunday, March 24.

The company also filed motions seeking permission to administer its case along with 16 affiliates while asking for continued access to its cash management systems. A hearing on the first-day motions before Judge Mary F. Walrath had not been set as of Monday.

Under the proposed "pre-pack," Otelco's $162 million term loan would be exchanged for a new $142 million loan and a cash payment of up to $20 million, its disclosure statement said. The lenders would also receive a pro rata share of Otelco's new Class B common stock, which would represent a 7.5% stake in the company.

The new term loan's maturity would be extended to April 30, 2016, and it would be priced at Libor plus 350 basis points, with a 3% floor on Libor. The debt was originally set to mature on Oct. 31, 2013, filings with the Securities and Exchange Commission said.

GE Capital Corp. is the administrative agent on the term loan, GE Capital Markets Inc. is the lead arranger and sole bookrunner, and CoBank ACB is the co-lead arranger and lender. Otelco's $15 million revolver, which had no debt outstanding, would be reinstated with up to $5 million in availability.

Noteholders, including holders of its income deposit securities, would receive a pro rata share of Otelco's new Class A common stock, which represents the remaining 92.5% stake in the company. Otelco owes $117.9 million in principal and interest on 13% subordinated notes due 2019. Wells Fargo Bank NA is the indenture trustee on the notes.

General unsecured creditors, owed an estimated $1.1 million, would have their debt reinstated with the reorganized company. Administrative, priority, priority tax and other secured creditors would be paid in full. Current equity holders would be wiped out.

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