McLeodUSA reaches recapitalization agreements

McLeodUSA said it has reached an agreement with Forstmann Little & Co. and McLeodUSA Secured Lenders on a restructuring plan that would eliminate at least 95% of the company’s $2.9 billion of bond debt and the associated $300 million of annual interest expense.

The plan, which must be sold to existing bondholders, would inject an additional $100 million into the company from Forstmann Little. The private equity company, which recently helped prop up XO Communications, will own about 45% of McLeodUSA after the reorganization.

As part of the deal, the company also said it is considering filing a pre-packaged Chapter 11.

Key to the restructuring will be the reaction of bondholders. Under the plan, they would receive $560 million in cash in exchange for at least 95% of the outstanding $2.935 billion in bond debt. McLeod plans to fund that part of the transaction by selling its publishing business for $535 million to Forstmann Little.

--Vince Vittore, executive editor