Otelco Inc OTT.O filed for Chapter 11 bankruptcy on Sunday, court documents showed, three months after the telecom services provider lost a major contract with Time Warner Cable Inc (TWC.N).
In February, Otelco reached an agreement with holders of its senior debt to amend and extend the terms of its senior financing to reduce its debt and improve its capital structure.
The company said in a court filing on Monday that it agreed with its senior secured lenders on a plan to reduce its long-term debt to "no more than $142 million" from about $271 million as of September 30, 2012.
Shares rose 11 percent to $1.80 as the company's stock and subordinated debt are packaged as an income deposit security. This will allow holders of the security to receive new shares in the restructured company.
Holders of the subordinated notes will hold about 92.5 percent of the total equity interest in reorganized Otelco, according to the filing.
Otelco said each holder of senior secured term loan would receive a share of the $142 million under a new secured credit facility, a cash payment of no less than $20 million and new Class B common stock, which will represent 7.5 percent of the reorganized company.
The company expects to emerge from bankruptcy at end of the second quarter.
Otelco said last April that Time Warner Cable would not renew a wholesale voice contract that 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.
The company'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.
Otelco 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.
Otelco offers telephone, Internet, broadband and television services in Maine, New Hampshire and other areas.
The stock was up 7 percent at $1.73 by afternoon on the Nasdaq.
The case is Otelco Inc et al, Case No. 13-10593, U.S. Bankruptcy Court, District of Delaware.
(Additional reporting by Mridhula Raghavan and Tanya Agrawal in Bangalore; Editing by Edmund Klamann and Sriraj Kalluvila)