Issue: CLEC to
Sell 'Strategic' Unit for Much-Needed Cash
competitive local exchange carrier McLeodUSA has negotiated a recapitalization
plan that includes the sale of its directory business, McLeodUSA Publishing,
to one of its principal investors, Forstmann Little & Co., with an option
to find a higher bidder before the deal closes. McLeodUSA is one of the
leading competitive directory publishers in the U.S., behind Yellow Book
USA and TransWestern Publishing. The company has been a major consolidator
of smaller independent publishing companies over the past several years.
plan will result in McLeodUSA effectively retiring $2.9 billion in publicly
traded bond debt in exchange for $560 million in cash, plus 14 percent
of McLeodUSA's post-recapitalization common stock. McLeodUSA, which is
overburdened by debts acquired during a much more bullish telecom market,
has not ruled out filing for Chapter 11 bankruptcy in order to get back
on its feet.
As part of the deal,
McLeodUSA has sold its McLeodUSA Publishing subsidiary to Forstmann Little
for $535 million. In addition, Forstmann has agreed to invest another
$100 million in McLeodUSA. McLeodUSA has negotiated the right to sell
its publishing business for a higher bid with no break-up fee, and Credit
Suisse First Boston (CSFB) has been retained to find a buyer.