Bankruptcy descends on Birch

By Susan Rush
from CED Broadband Direct, July 30, 2002

After weighing all its options, Birch Telecom has opted to seek creditor protection under the shroud of a Chapter 11 bankruptcy filing, while it works to trim its debt to $100 million.

The CLEC had first raised the possibility of a bankruptcy filing back in December. At that time, the company said it was "actively engaged in discussions with its senior lenders regarding a possible restructuring of the company's capital structure." The pre-negotiated bankruptcy filing is supported by 95 percent of the company's bondholders, and is designed to reduce the company's debt from $310 million to $100 million. The plan calls for Birch to swap its debt for equity in the company. Once the debt-equity exchanges have been made, banks will receive an 80 percent stake in the company, while bondholders will own a 20 percent stake.

"Given our solid cash flow performance, the support of our stakeholders for the restructuring plan, and the fact that no additional funding or debtor financing is needed for its completion, we are confident that the plan can be swiftly processed and approved by the Court," said Birch Telecom President and CEO Dave Scott.

The company has more than 100,000 customers. Birch Telecom has been working to expand business-class DSL network over the past several months. The network serves several Texas cities, including Austin, Corpus Christi, Dallas, Fort Worth, Houston and San Antonio. The company also provides service in Kansas City, Topeka, Lawrence and Wichita, Kan.; and in Kansas City, Mo., St. Louis, Oklahoma City and Tulsa, Okla.

Birch intends to continue its day-to-day operations during the bankruptcy proceedings.