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The Deal: Otelco Seeks Equity in Ch. 11

Court documents show lenders including GE Capital, CoBank, Raymond James Bank FSB, Union Bank of California NA, Webster Bank NA and CIBC Inc. signed a Jan. 31 plan support agreement. Ultimately, all revolving and term lenders voted in favor of the plan, as did 91.41% of subordinated noteholders with 96.36% of claims.

A hearing on the debtor's plan and disclosure statement had not been set as of Monday. Otelco said in a Monday statement that it aimed to complete its restructuring in the second quarter.

According to court papers, Otelco decided it had to restructure its overleveraged balance sheet after two key negative developments last year. First, Time Warner Cable Inc. notified Otelco it would not renew its contract with the company for wholesale network connections. Second, the Federal Communications Commission issued an order making substantial changes to the way telecommunications carriers are compensated for serving high-cost areas and for completing traffic with other carriers, requiring a lowering of intrastate access rates.

Due to the FCC reforms and the expiration of the Time Warner Cable contract, Otelco expected Ebitda to decline from a range of $40 million to $50 million in prior years to $28 million to $30 million in the coming years.

"As a result, it is no longer feasible for the company to service over $250 million of debt," it said in the plan, adding it cannot refinance its debt outside of court. For the 12 months ended Sept. 30, Otelco posted a $126.9 million net loss on $100.2 million in gross revenue.

Otelco retained Evercore Group LLC as its financial adviser in May to assist it with its restructuring.

Otelco was formed in 1998 to operate and acquire rural local exchange carriers, or RLECs. Since 1999, the company has purchased 11 RLEC businesses. It is now in the top 25 largest local exchange carriers in the U.S., based on number of access lines.

The company's core businesses are local and long-distance telecommunications services, as well as wholesale access to local and long-distance networks and network access to other wireline, long-distance and wireless carriers for calls originated or terminated on its network. In addition, the company provides cable and satellite television service in some markets and digital high-speed data lines and residual dial-up Internet access in all of its markets.

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