Allegiance Telecom files for Chapter 11

By Carlise Newman

Chicago, May 15 - Allegiance Telecom Inc. filed for chapter 11 bankruptcy protection in the U.S. Bankruptcy Court Southern District of Texas. Discussions with the senior creditors and other stakeholders are continuing, the company said in a news release.

Allegiance has $1.349 billion in current assets and $1.41 billion in current liabilities.

Allegiance said the filing, made Wednesday, will facilitate negotiations with creditors while enabling it to conduct business as usual.

"Although we have not yet secured the agreement of our senior creditors, we believe we have a sound plan to restructure our balance sheet in line with current business realities," said Royce Holland, chairman and chief executive officer of Allegiance Telecom, in a news release. "With approximately a quarter billion dollars of cash, Allegiance is free of the liquidity problems experienced by other telecom companies that have filed under Chapter 11. We believe this move is the best way to safeguard the value of our enterprise, reduce costs, and increase our competitive advantage in the market as we continue negotiations with our creditors."

On April 30, Allegiance said it was in default under its senior credit agreement because it has missed a debt-reduction target, but its lenders agreed to forbear from accelerating their loans or exercising their remedies until May 15.

As part of the forbearance agreement, Allegiance was required to make a payment of $5 million to the banks that have loaned the company $471 million of senior secured credit facilities.

On Nov. 27, 2002, Allegiance and its senior lenders amended the company's senior credit agreement, under which Allegiance agreed to reduce its total indebtedness to $645 million from $1.2 billion by April 30. Allegiance had not reduced its debt and as a result was in default by April 30.

Dallas-based Allegiance is a local exchange carrier.

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