Focal refinances, refocuses and restructures

Focal Communications is getting back to basics. In addition to announcing guidance for the rest of the year and for 2002 today, the company said it has completed a refinancing package that includes a $150 million infusion of private investment capital, the exchange of about $280 million of high yield debt for equity, an amendment of the Company's senior bank credit facility and a reverse stock split.

Additionally, the company said it would halt further expansion of its network while also laying off 175 employees, or about 13% of its workforce.

“We believe we’ve put together the best deal for everyone that could get done in this environment,” said Robert Taylor, chairman and CEO of Focal.

As part of the recapitalization, Madison Dearborn Partners, Frontenac Company and Battery Ventures will provide $150 million in private financing, which will consist of $50 million of convertible preferred stock and a $100 million secured convertible note. Both securities are convertible into common shares of Focal and will accrue 8% payment-in-kind (PIK) interest or dividends.

The company also has arranged with several of its high yield bondholders to exchange $280 million in principal amount of its bonds for shares that will amount to about 35% of the fully diluted shares of Focal common stock at the closing. The renegotiated bond covenants will reduce reduces Focal's outstanding debt and interest expense by more than $500 million.

The company also said it would execute a reverse stock split in effort to boost its per-share price. Details on the reverse split were not revealed though Taylor said the company wanted to get “somewhere north of the $10 range.” Focal closed today at $1.49 per share.

Strategically, the company said it would consolidate its voice and data business units into a single group, halt its expansion plans to focus instead on its 22 existing markets and cease DSL operations in all markets except Chicago, New York, Philadelphia and San Francisco.

“We attempted to grow our data business a bit too fast,” Taylor admitted. “And we strayed from our slow steady philosophy.”