( MCLD) dropped 17.3% to 43 cents in premarket Instinet trading after the company reached a comprehensive recapitalization and financial restructuring plan with Forstmann Little and a group of secured lenders.

The plan would eliminate at least 95% of the company's $2.9 billion of bond debt and the associated $300 million of annual interest expense. After the transaction closes, Forstmann, which reached a similar arrangement last week with

XO Communications


, will own about 45% of the outstanding common equity of McLeodUSA.

One component of the agreement calls for McLeodUSA to sell its telephone directory publishing business to Forstmann for $535 million. The company left open the possibility of a Chapter 11 filing, if necessary, to complete the recapitalization.