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McLeodUSA Files Chapter 11

The company comes to terms with bondholders on a recapitalization plan.

Independent local exchange carrier



filed a prepackaged Chapter 11 bankruptcy after coming to terms on a recapitalization plan with a group of bondholders.

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The company, a voice and data carrier that fell victim to the weak economy and growing competition, had previously disclosed it was working on the recapitalization and had warned it could face a bankruptcy filing. Buyout firm Forstmann Little will be the company's majority owner after the reorganization.

The plan would eliminate about $3 billion of bond debt and pay senior noteholders with $670 million cash, $175 million of convertible preferred stock, and warrants. The company also entered "lock-up and support agreements" with holders of about 45% of its Preferred Series A, Series D and Series E shares, including funds managed by Forstmann Little, to support the plan. Holders of the company's existing Class A common stock are expected to retain 17% of the shares of the reorganized McLeodUSA.

McLeod said the filing wouldn't interrupt its business. The company has $140 million in cash and a commitment for $110 million in exit financing from a group of lenders.