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| William Freeman |
Bank loan desks have been trading significant amounts ofLeap Wireless International's shares on a when-issued basis as the company emerged from Chapter 11 bankruptcy protection last week. According to a dealer, "new equity players are trying to play a clean wireless name that is cheap to its competitors." William Freeman, Leap's ceo, said he expects more activity. "I expect our operating results to be strong enough to continue to get our investors easy and viable access to the secondary markets and both the equity side and debt side should hopefully trade rather freely based upon our ability to serve our customers and continue to have strong cash flow and profitability," he said.
"The business has come out strong and I think this is a unique story. This is a business that got larger during the [duration] of the case," added Doug Hutcheson, Leap's executive v.p. and cfo. "Our revenues during the process actually went up substantially and at the same time we utilized those tools that Chapter 11 provided us to drive our costs down as well. So, it was a great outcome."
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| Doug Hutcheson |
Leap's $1.6 billion in vendor claims are being substituted by equity in the reorganized company with senior secured debt holders receiving 96.5% of the equity in the reorganized company as well as $350 million in 13% pay-in-kind notes. Institutional clients are said to be the only holders of the paper. Leap's final levels were 117-119 and the stock now trades around $25.10. If the bonds are treated as par paper, a share price of $25.10 values the old debt at 118 1/2, said a dealer. Ericsson, Nortel Networks, Qualcomm and Lucent Technologies sold the paper to vulture funds and distressed desks two years ago in the high teens. Jefferies & Co. issued a research report last week that sets a price target of $40. Leap is currently trading at $988 per subscriber and 6.4 times EBITDA. This compares to 8.1 times EBITDA and $1,500 per subscriber for the Sprint affiliates. Another upside is the potential sale of unused wireless spectrum and a refinancing of the new senior notes. The $350 million of bonds will act as the company's exit financing and could be refinanced with bank debt in the short term after the company evaluates, together with its bank group, all of its alternatives, stated Hutcheson.
Leap has named a new board and will add three new directors in the near future, including Freeman; James Dondero, president of Highland Capital Management; and Mark Rachesky, president of MHR Fund Management. Leap has 100 debt holders with MHR and Highland among a couple of the major players, said Freeman. He added both MHR and Highland had been holders of Leap's debt since it was originally sold.