Microcell's bank debt surged on increased speculation that Rogers Wireless would soon make a bid for the struggling company. In addition, Microcell has committed to a restructuring plan that is boosting the name. Pieces of the bank debt were said to have changed hands in the 58, 61 1/2, and 62 1/2 ranges after climbing up out of the 50s last week. About two months ago, the bank debt levels began to rise from the 20s as lenders anticipated a restructuring that would be favorable to bank debt holders.
The restructuring plan calls for secured creditors to exchange C$600 million of debt--bank lenders hold C$443 million of that amount--for C$350 million of new secured debt and 68% of common equity in the reorganized company. The plan provides 57% of the bank debt's current value and that does not ascribe the equity any value, explained one trader. The bank debt could be worth more than par because of the equity and that's why the levels have shot up so quickly, noted a different trader. Another analyst concurred, assigning the bank debt a value of 99 on a conservative basis and 110 on an aggressive basis.
The restructuring is being completed under Canadian court-supervision. Under the plan, Microcell will be able to eliminate roughly C$200 million in annual interest payments on all the debt. The current plan is based upon the expectation that the Canadian wireless market will grow 18% over the next six years, bringing wireless penetration in Canada on par with the U.S and Europe. The company is looking to double its customer base in that time.