Otelco Inc OTT.O filed for Chapter 11 bankruptcy on Sunday, court documents showed, three months after the telecom services provider lost a key revenue-generating contract from Time Warner Cable Inc (TWC.N).
In February, Otelco reached an agreement with its senior lenders to amend and extend the terms of its current senior financing to reduce the company's debt and improve its capital structure.
Otelco said at that time the debt restructuring would best be implemented through a "prepackaged" Chapter 11 filing, which had the support of the company's senior lenders. In a prepackaged bankruptcy, management negotiates the general terms of a bankruptcy plan with major creditors prior to the filing.
The company said last April that Time Warner Cable would not renew a wholesale voice contract which accounted for 12.3 percent of Otelco's total revenue of $74.5 million for the nine months to September 30, 2012. The contract expired on December 31.
Otelco's revenue potential was also hit by a Federal Communications Commission (FCC) order in late 2011 that lowered certain access rates by changing the way telecom carriers are compensated for exchanging traffic, the company said in Sunday's court filing.
The company estimated its annual EBITDA (earnings before interest, tax, depreciation and amortization) would fall to a range of $28 million to $32 million in 2014, from $40 million to $50 million in prior years, due mainly to those developments.
"As a result, it is no longer feasible for the company to service over $250 million of debt," Otelco said in the filing.
The company said it agreed with its senior secured lenders on a plan that would reduce its long-term debt from a current balance of about $271 million as of September 30, 2012, to "no more than $142 million."
Following the restructuring, which is subject to court approval, holders of subordinated notes will hold about 92.5 percent of the total equity interests in reorganized Otelco, according to the filing.
The company's stock closed at $1.62 Friday on the Nasdaq.
Otelco offers telephone, Internet, broadband and television services in Maine, New Hampshire and other areas.
The case is Otelco Inc et al, Case No. 13-10593, U.S. Bankruptcy Court, District of Delaware.
(Additional reporting by Mridhula Raghavan in Bangalore; Editing by Edmund Klamann)