Speculation is growing among market participants about a possible prepackaged bankruptcy for McLeodUSA in the next four to five months. "They have no bonds left, it's all bank debt. In the last bankruptcy they left too much debt on the balance sheet so they'll have to restructure yet again," one trader said. But both the trader and a buysider agreed that such a move is not imminent. Kenneth Burkhardt, McLeod's cfo did not return calls. McLeod declared bankruptcy in 2002, retiring more than $3 billion in debt.
During the week, McLeod's $615 million "B" loan softened to 39 from 40-41 three weeks ago (LMW, 3/7). A dealer noted that one possibility is a 363 asset sale, in which the debtor sells all or substantially all of its assets during Chapter 11. "Proceeds from the asset sale could go to pay off debt." A final option is liquidation--in pieces or as a whole. "Proceeds from the liquidation would go to the creditors and you could actually get some recovery by selling it to a strategic buyer," he noted.
Last month, McLeod's bank debt was quoted at 35-38, the lowest point in its history after a call between the company and its lenders was perceived as negative (LMW, 2/28). The debt recovered a week later for technical reasons, a trader said at the time. Rumors have also swirled that a strategic buyer was trying to buy the company through the bank debt.