WOW.(COMTEX)B: Allegiance Telecom Inc. Could Have Leverage over Its Lenders,
nalysts Say
B: Allegiance Telecom Inc. Could Have Leverage over Its Lenders, Analysts Say
Jun 13, 2003 (The Dallas Morning News - Knight Ridder/Tribune Business News via
COMTEX) -- Allegiance Telecom Inc.'s future will be hashed out by a colorful
cast of characters that includes a former business associate of President Bush
and an investor who was convicted of insider trading in the 1990s.
The Dallas-based phone and data firm filed for Chapter 11 bankruptcy protection
May 14 to win greater leverage over these lenders after unsuccessfully
negotiating with them for six months.
Experts said a bankruptcy will strengthen the management's hand in reducing its
$1.4 billion debt. But its creditors, who are led by prominent, publicity-shy
Dallas investor Edward W. "Rusty" Rose, have a powerful position.
Another key player may be Gary Singer, a New Jersey investor who was sentenced
to 28 months in prison in 1995 for paying an analyst for confidential
information about bond trades.
Mr. Rose, who was Mr. Bush's partner in managing the Texas Rangers, appears to
have amassed the biggest stake in Allegiance's debt, according to court records.
His position gives him a critical role in the restructuring of the company,
experts say.
When the firm filed for bankruptcy, Mr. Rose owned more than 28 percent of its
$465 million secured debt. It's unclear how much of the company's $650 million
bond debt he controls, because those records have not been disclosed. G.E.
Capital is Allegiance's second biggest secured creditor with about 7 percent of
the debt.
By November, Mr. Rose had bought up about 20 percent of the bond debt and
secured debt and appeared to be a management ally.
At the time, Mr. Rose was said to be friendly with Allegiance executives,
especially chief operating officer Dan Yost, with whom he serves on the board of
Irving-based Ace Cash Express Inc.
But an analyst said recently that the company's bankruptcy and Mr. Rose's lead
standing in the case indicate he and management have sparred more than agreed.
Had he truly been a friend, the company might have avoided bankruptcy, said Phil
Jacobson, managing director of Network Conceptions LLC, a research and
consulting firm. "There was an indication that he was coming in to be a player
to help management," Mr. Jacobson said. "I don't think he was of any help."
Allegiance chairman and chief executive Royce Holland has declined to discuss
Mr. Rose's involvement, and a spokesman said Thursday he couldn't comment. Calls
placed to Mr. Rose's office and lawyers were not returned this week.
Mr. Rose is perhaps best known for the part he played in a consortium of
investors that ran the Texas Rangers from 1989 to 1998.
Before that Mr. Rose drew attention for his role as chairman of Darling-Delaware
Co., a Dallas-based rendering firm. Mr. Rose and his partners in the company
were criticized for paying themselves a $180-million dividend that hurt the
company's finances.
As a young financial analyst, Mr. Rose worked for Fort Worth's Bass family,
helping manage their oil inheritance.
"He was considered at one point a star analyst, helping run the Bass brothers'
money," said Michael Gill, an analyst at B. Riley & Co. Inc.
Mr. Singer appears to have gained an important seat at the table by being
selected as a member of Allegiance's unsecured creditors committee. It's unclear
how big a stake Mr. Singer's Romulus Holdings Inc. owns in Allegiance's bonds,
but experts say the biggest holders typically get on the panel.
"You can make the conclusion that the bond creditors [on the committee] are some
of the largest," said Chris Roberts, research director at Austin-based Tejas
Securities Inc., which owns Allegiance bonds.
Mr. Singer did not return calls.
Mr. Roberts said it may take months before the various creditor groups - secured
lenders, bondholders and trade creditors - hammer out a deal. Others that may
figure prominently are phone companies such as Verizon Communications Inc.,
which claims it's owed $34.8 million.
Allegiance may find it easier to get a restructuring deal passed in bankruptcy
court than it did in the months before when it was trying to meet an April
deadline to halve its debt to $645 million, experts said.
Before a bankruptcy, companies must win the approval of all lenders, but once
they are in court, they have to meet a much easier threshold, said Mike Anglin,
a partner at Fulbright & Jaworski LLP.
Mr. Holland's team will have to get creditors representing two-thirds of its
debt and half of all its lenders to agree to a deal. The rest can be forced to
accept the terms.
"Bankruptcy does have a lot of these pro-reorganization structures," Mr. Anglin
said. "That can cause holdout minorities to go along."
It should help that Allegiance had $250 million in cash when it declared
bankruptcy. That money will allow it to pay for lawyers, investment bankers and
other advisers. It will also reduce its need for new financing after bankruptcy.
In a May interview, Mr. Holland cited some of those reasons for his confidence
in the company's chances. He also noted that MCI, formerly WorldCom Inc., was
proving that a telecommunications company could re-emerge from bankruptcy.
"The only reason we are filing is to try to get this agreement done with our
lenders," he said then. "And we just couldn't get it done out of court."
By Vikas Bajaj
To see more of The Dallas Morning News, or to subscribe to the newspaper, go
to dallasnews.com.
(c) 2003, The Dallas Morning News. Distributed by Knight Ridder/Tribune Busines
News.
-0-
*** end of story *** |
