Call-Net announces comprehensive negotiated recapitalization plan
TORONTO, Feb. 20 /CNW/ - Call-Net Enterprises Inc. today announced a
comprehensive recapitalization proposal, negotiated with its major noteholders
and shareholders, that would reduce Call-Net's debt by more than $2 billion.
The proposed new capital structure would provide a stronger financial base for
the execution of Call-Net's growth strategy to enhance the long-term value of
the Company.
Call-Net has received written acknowledgements of support for the
proposal from noteholders holding in excess of 50% of the value of the
existing notes. Shareholders holding in excess of 38% of the outstanding
shares of the Company, including Sprint Communications Company L.P., have also
provided written acknowledgement of support.
Under the terms of the proposal, all of Call-Net's $2.6 billion of senior
notes would be exchanged for US$377 million of new 10.625% senior secured debt
due December 31, 2008, US $81.9 million in cash and 80% of the equity in the
recapitalized Call-Net. The existing shareholders of Call-Net would retain 20%
of the Company's equity.
The Company also announced that, subject to securityholder approval of
the proposal and concurrent with completion of the transaction:
- Sprint Communications Company L.P. of Westwood, Kansas, has committed
to invest $25 million to purchase a 5% interest, on a post-arrangement
basis, in new Call-Net shares from treasury, and
- Sprint Communications Company L.P. and Call-Net have also agreed in
principle to enter into a new 10-year branding and technology services
agreement that will expand their business relationship and enhance
Call-Net's product offerings.
"This plan is an important and positive step forward for Call-Net and all
its stakeholders. It is a consensual and comprehensive solution to
strengthening Call-Net's capital structure, which means it meets the criteria
established by our Board of Directors. We believe it is a fair solution for
both noteholders and shareholders and we are encouraged that it has already
elicited significant support among both groups," said Bill Linton, President
and CEO of Call-Net Enterprises. "This proposal will have no effect on
customers, suppliers or our employees. It is business as usual. But, in the
longer term, a stronger Call-Net will benefit them as well."
Call-Net's Board of Directors is recommending all securityholders support
the proposal because it would reduce debt by more than $2 billion, normalizing
the Company's capital structure. It would also save approximately $485 million
in cash interest costs over the next four years and retain approximately $200-
million of cash and short-term investments within the Company to fund the
ongoing implementation of its business plan.
"With this plan, management is delivering on a key commitment," Randy
Benson, Call-Net's Chief Financial Officer, said. "We set out to negotiate an
all-inclusive solution that benefits all stakeholders. We believe this plan
does that. It is a fundamental re-shaping of the Company's capital structure
that allows us greater flexibility in pursuing operating and financing
opportunities. It will also help us attract and retain both customers and
employees."
Details of the proposal will be provided in documents that are being
distributed to the Company's shareholders and noteholders. Pursuant to an
interim order, granted to Call-Net by the Ontario Superior Court of Justice on
February 20, 2002, separate noteholder and shareholder meetings have been
scheduled for April 3, 2002 to approve a Plan of Arrangement under the Canada
Business Corporations Act. In addition to noteholder and shareholder
approvals, implementation of the Plan of Arrangement is subject to the final
approval of the Ontario Superior Court of Justice and receipt of all necessary
regulatory and stock exchange approvals.
Generally, under the Plan of Arrangement, in exchange for their unsecured
notes, existing noteholders would receive a cash payment, secured notes, and
361,795,100 New Class B shares or the equivalent number of common shares if
the holders of the notes provide a declaration to Call-Net that they are
Canadian for the purposes of the Telecommunications Act. Existing holders of
the 17,580,396 common shares would exchange those shares for an equal number
of New Common Shares. Holders of the existing 51,093,262 Class B shares would
also receive an equal number of New Class B shares or equivalent number of
common shares if the holders of the Class B shares provide a declaration to
Call-Net that they are Canadian for the purposes of the Telecommunications Act
and holders of the 21,775,017 Class C shares would exchange them for an equal
number of New Class B shares. The Company will immediately consolidate the New
Common and New Class B Shares on a one for 20 basis.
The following table shows the effect of the Arrangement on the Company's
consolidated capital structure:
<<
Consolidated Capital Structure
($ millions except ratios) December 31, Pro Forma
2001 After
Arrangement
-------------------------------------------------------------------------
Long-term debt 2587.3 600.4
Shareholders' equity (deficiency) (1,267.1) 406.3
---------- --------
Total capitalization 1,320.2 1,006.7
---------- --------
Ratios
Debt/Equity Not meaningful 1.48
Debt as a percentage of
total capitalization 196.0% 59.6%
-------------------------------------------------------------------------
"We have focused on three key steps to increase the viability and value
of Call-Net for the long term," Mr. Linton said. "We have successfully
implemented a more appropriate operating strategy and the financial
disciplines to support it. We have made a strong case for changes to the
regulatory environment that would encourage sustainable competition in the
Canadian industry. The plan we are announcing today is a significant third
step. The combination of these three initiatives will give Call-Net a fresh
start towards increasing our enterprise value."
Call-Net 2002 financial targets
Call-Net has set targets for 2002 that reflect the continued execution of
the Company's growth strategy focused on voice, data, and IP.
The 2002 financial targets on key measures are as follows:
2002 Target 2001 Year over Year
Variance
Revenue $850 to $950 million $928.4 million (8.4)% to 2.3%
EBITDA(1) $110 to $150 million $134.8 million(2) (18.4)% to 11.3%
Capital
Expenditures $90 to $110 million $101.5 million (11.3)% to 8.4%
Net loss $(120) to $(80) Million $(297.9) million(2) 59.7% to 73.1%
(1) Earnings before Interest, Taxes, Depreciation & Amortization
(2) 2001 EBITDA and net loss are before unusual items
>>
Key assumptions & sensitivities
For projection purposes we have reflected the implementation of the Plan
of Arrangement and the new 10year Sprint Communications Company L.P. branding
and technology service agreements, including its 2.5% royalty on substantially
all revenue. We have also reflected our current expectation in respect of
carrier cost relief from the pending Canadian Radio-television and
Telecommunication Commission price cap decision. We have also made a number of
assumptions in respect of risks inherent with the economy in general and our
industry and business in particular.
We encourage all investors to read the forward looking statement below
for the various economic, competitive, regulatory and company factors that
could cause actual future financial and operating results to differ from those
currently expected.
Forward-looking statements
This news release contains statements about expected future events and
financial and operating results that are forward-looking and subject to risks
and uncertainties. Call-Net's actual results, performance, or achievement
could differ materially from those expressed or implied by such statements.
Such statements are qualified in their entirety by the inherent risks and
uncertainties surrounding future expectations and may not reflect the
potential impact of any future acquisitions, mergers or divestitures. Factors
that could cause actual results to differ materially include but are not
limited to: general business and economic conditions in Canada and in Call-
Net's service territories; competition in voice, data and Internet services
and within the Canadian telecommunications industry generally; levels of
capital expenditures; corporate restructurings and related costs; capital and
operating expense savings; regulatory decisions; technological advances and
other risk factors described in Call-Net's comprehensive public disclosure
documents, including the Management Proxy Circular with respect to the
proposed Plan of Arrangement, and in other filings with securities commissions
in Canada and the U.S.
The forward-looking statements contained in this news release represent
Call-Net's' expectations as of February 20, 2002 and accordingly, are subject
to change after such date. Call-Net disclaims any intention or obligation to
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
About Call-Net Enterprises Inc.
Call-Net Enterprises Inc. is a leading Canadian integrated communications
solutions provider of local and long distance voice services as well as data,
networking solutions and online services to businesses and households
primarily through its wholly-owned subsidiary Sprint Canada Inc. Call-Net,
headquartered in Toronto, owns and operates an extensive national fibre
network and has over 100 co-locations in nine Canadian metropolitan markets.
For more information, visit the Company's web sites at www.callnet.ca. and
www.sprintcanada.ca.
%SEDAR: 00004316EB
-30-
For further information: Investors: John Laurie, Vice-President,
Treasurer and Investor Relations, 416-718-6245,
John.Laurie@sprint-canada.com; Media: John Lute, Lute & Company
416-929-5883 ex 222, jlute@luteco.com
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