High-speed Internet access service provider Covad Communications Group said yesterday that it filed for Chapter 11 bankruptcy protection.
The filing and debt restructuring isn't expected to affect the company's Digital Subscriber Line (DSL) customers, Covad said in a statement. The company said its operating subsidiaries plan to continue their operations and provide service to the 330,000 customers on its network.
"This filing is a tool to eliminate Covad's debt and significantly improve our ability to raise the additional capital we need to get to profitability," said Charles E. Hoffman, Covad's CEO, in the statement. "Most importantly, this action does not affect our operations, customers, network or employees. It is business as usual for our broadband customers."
The move wasn't unexpected. On Aug. 7, the Santa Clara, Calif.-based company said it planned to file for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware in the middle of this month. The company expects to emerge from bankruptcy by January next year.
Under the plan, Covad said bondholders would exchange their bonds for a combination of cash and preferred stock. In addition, the company would make two final payments totaling $26.5 million on its 12.5 percent bond issue. As part of the deal, bondholders would get cash payments worth 19 cents for each $1 of the face value of the bonds.
In the end, Covad would pay out $282 million of the $1.4 billion the company now owes.
Covad isn't the only telecommunications company to file for bankruptcy protection. Other telecom companies that have filed Chapter 11 this year include PSINet Inc., Teligent Inc. and Winstar Communications Inc.
