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Executives

Kevin Enda – Investor Relations Contact

Michael D. Weaver – Chairman, President and Chief Executive Officer

Otelco, Inc (OTT) Restructuring Transaction Conference Call February 1, 2013 1:00 PM ET

Operator

Good day everyone, and welcome to the Otelco Incorporated Conference Call. Today’s call is being recorded. At this time, for opening remarks, I’d like to turn the call over to Mr. Kevin Enda. Please go ahead, sir.

Kevin Enda

Thank you, Ann, and welcome to this Otelco conference call to review the restructuring announcements made this morning. And with me today are, Mike Weaver CEO; and Curtis Garner, CFO.

We will not be taking questions on today’s call, and ask that you email questions to the Curtis Garner, our CFO or call Curtis at 205-625-3571. For your information, there’s a short investor presentation available on the Company’s website www.otelcoinc.com in the Investor Relations section under the restructuring tab that summarizes much of the material being presented today.

Before we start, let me offer the cautionary note. The statements made on this conference call that are not statements of historical or current fact constitute forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties, and other unknown factors that could impact the Company’s restructuring plans or cause the actual results of the Company to be materially different from the historical results or from any future results expressed or implied by such forward-looking statements.

In addition to statements which explicitly describe such risks and uncertainties, listeners are urged to consider statements labeled with the terms believes, belief, expects, intends, anticipates, plans or similar terms to be uncertain and forward-looking. There can be no assurance that the restructuring transaction discussed on this call can be consummated. The forward-looking statements contained herein are also subject generally to other risks and uncertainties that are described from time-to-time in the Company’s filings with the SEC.

With that stated, I’ll now turn the call over to Mike Weaver.

Michael D. Weaver

Thanks, Kevin. Earlier today, Otelco issued a press release announcing a restructuring transaction that will strengthen our balance sheet, simplify our capital structure and reduce our debt and interest burden.

The press release and documentations supporting the transaction have been filed on Form 8-K with the SEC. Once the restructuring transaction is completed, Otelco will be in a better position to compete in the telecommunications market place, invest in our network facilities and develop new products and services. We do not anticipate any reductions to existing staffing levels and the company will continue to have a positive cash flow, which allows us to operate on a business as usual basis.

Record date for the transaction is for holders of record on next Friday, February 8, which for most buyers will mean transactions operated and executed by close of business of Tuesday, February 5. The documents explaining this transaction will be mailed the week of February 11, and I urge you to read the material carefully as you consider your options. The documents you receive describe the plan and solicit your approval. I encourage you to support the plan with your ‘yes’ vote, as I’m confident the plan represent the best possible outcome for the company, the holders of our IDS units and our creditors.

Headwinds we faced over the last 12 months have led us to the conclusion that we must reduce the company’s debt and improve its capital structure. Our business like all businesses faces the competitive pressures and challenges presented by a sluggish economy.

In addition, the telecommunications environment has experienced significant change in the last few years. The recent non-renewal of the Time Warner Cable contract and the decline in revenue resulting from FCC mandated reforms will significantly reduce our cash flow for EBITDA in future years.

Our projections indicate EBITDA will decline from $45 million to $28 million to $32 million per year going forward. Given the size of the reduction, it will be difficult to support our current of debt going forward. After exploring alternatives, we believe reducing the debt burden and improving our capital structure can best be accomplished through a prepackaged Chapter 11 filing which already has the support of our senior lenders.

The proposed plan if approved is filed, will accomplish following objectives. Reduce total debt from $270 million to approximately $135 million, amend and extend the senior credit facility through April 30, 2016 and pay all vendors and suppliers in full.

I want to just take the next few minutes just to describe the plan in simple terms that will hopefully give you the necessary background information to better understand and support transaction.

Our proposed plan reduces the debt through a combination of cash payment to the senior lenders and conversion of subordinated notes to equity. Each IDS unit that you and I own today consists of a common stock and a subordinated note. Under our plan, the common stock will be cancelled and the subordinated debt including all deferred interest will be exchanged for new Class A common stock. Subject to dilution by management equity plan, the existing subordinated note holders will save approximately 92.5% of the equity to company including 7.3%, which will be distributed to the non-IDS holders of subordinated debt.

The remaining 7.5% of the equity of the companies will be given to the senior lenders in a lieu of a cash fee remanding and extending the senior credit facility. This conversion of the subordinated debt to equity will result in a reduction of $108 million in debt. We plan to further delever the company by using approximately $27 million of our cash on hand at closing to pay down our senior lenders.

Given that we have approximately $32 million in cash on the balance sheet at year-end, we believe we have sufficient liquidity to affect this transaction and to satisfy our operating expenses.

After extensive negotiations with our existing senior lenders, we’ve reached an agreement for a $5 million revolving line of credit, and a term loan of not more than $142 million. As conditions for the amended and extending senior credit facility, the lenders are requiring reduction of total debt, $7.5 million of the equity of the restructured company and certain other concessions.

These concessions involve additional governance rights and specified default protections. Under the terms of the agreement, the lenders have the right to approve the independence of three of the seven board members, the requirements for independence include among other things, no existing relationship with Otelco, its senior management or current board members. I want you to understand, I want to be clear that the process for electing the board members has not changed. All board members will continue to elected by the shareholders of Otelco.

In the event of certain items default known as triggering event, the independent board members approved by the lenders would have super voting rights and thus voting control of the board. Triggering events are defined as either senior leverage in excess of 4.2 times EBITDA or payment default. If a triggering event occurs, the company has an obligation to initiate and complete the sales process within 360 days including, obtaining regulatory and shareholder approval in that timeframe.

Revolver in the term loan have a maturity date of April 30, 2016 with pricing of LIBOR plus 350 and a LIBOR floor of 3% which effectively gives us the right of 6.5% based on projected LIBOR rates.

Today, our current lended or effective rate of interest would pay us 7.9%, so this is a significant savings in reduction in future interest expense. The term loan has fixed amortization of 5% per year, and a variable amortization of 75% of the excess cash flow on a quarterly basis.

The restructuring plan provides that with the required consent of the IDS and subordinated note holders, trade creditors will be unaffected by the Chapter 11 filing and will be paid in full.

As an IDS holder, the amount of equity you receive in exchange for the subordinated debt is not affected by payment to our trade creditors. In other words, you receive the same amount of equity whether or not the trade creditors are paid in full. By paying the trade creditors in full however, our flow of business will not be interrupted, and will be a more efficient, and therefore more valuable company.

Since the ability to pay trade creditors in full benefits our business and us as business owners and has no impact on the amount of equity we received in exchange for the subordinated debt, I strongly encourage you to support the plan with your ‘yes’ vote.

You believe as I do, that this restructuring plan will result in a stronger company, I again ask that you support the plan. Since we have the support of the senior lender group, this plan can be approved by the bankruptcy court without other creditor approval. However, we believe it is critical that sub-debt holders including holders of IDS units both to approve the transaction.

Approval by a sub-debt and IDS holders will benefit the company and move the value of maximizing for all stakeholders. It will further serve to shorten our bankruptcy process which will save the company time, money and resources.

This transaction is not only the best outcome for the company, but best for all of us. As current and future owners of the company, we all want it to be as profitable as company, and without a doubt a fully consensual bankruptcy is the best answer for Otelco.

As I mentioned earlier, holders of record on February 8 will receive documents explaining the plan, and soliciting support shortly after the record date. We anticipate the solicitation period will last for 30 to 35 days, and further anticipate the filing for Chapter 11 once the solicitation period has ended.

As much of the leg work has already been done, we anticipate our bankruptcy process will be relatively great, and will last only as long as we need to obtain the requisite approvals for the transaction.

We’ll keep you posted and updated on our progress as we work through the process. The updates will be posted on our website as Kevin mentioned, under the Investor Relations tab, in a new section called restructuring.

I am very confident this restructuring plan will result in a stronger company, and I urge you to support it by voting for the plan. Finally, I just want to thank you for taking time to join the call today.

Question-and-Answer Session

[No Q&A session for this event]

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