RCN files prepackaged Chapter 11, obtains $460 million loan commitment

New York, May 27 - RCN Corp. made a prepackaged Chapter 11 filing in the U.S. Bankruptcy Court for the Southern District of New York Thursday after reaching agreement with its senior secured lenders and an ad hoc committee of holders of its senior notes on a debt restructuring.

The Princeton, N.J., broadband company also obtained a commitment for $460 million of new bank financing from Deutsche Bank Securities Inc.

The proposed restructuring will cut RCN's debt to $480 million from its current $1.66 billion.

Under the terms of the agreement:

* The existing senior secured credit facility will be repaid in full in cash unless existing lenders choose to roll the borrowings into the new facility;

* Holders of general unsecured claims including bondholders will receive 100% of the equity of the reorganized company, subject to dilution from a management incentive plan and warrants;

* Holders of RCN's existing preferred stock and common stock will receive warrants for 2% of the company's stock with a two-year term and a strike price that gives an enterprise valuation of $1.66 billion;

* Holders of existing warrants and options will receive nothing;

* The commercial term loan and credit agreement dating from June 6, 2003 with a syndicate led by agent HSBC Bank USA will either remain outstanding or be refinanced.

The new loan from Deutsche Bank will be made up of a $285 million term loan facility, a $25 million letter-of-credit facility and a $150 million second-lien facility.

RCN expects to emerge from Chapter 11 in the fourth quarter.

In connection with the filing, RCN said it has obtained waivers from its existing bank lenders of any defaults caused by the Chapter 11 filing and to amend the minimum cash requirements.

RCN listed assets of $1.487 billion and liabilities of $1.820 billion in its filing. The liabilities include $290.3 million of 9.8% senior discount notes due 2008, $160.9 million of 10% senior notes due 2007, $202.9 million of 10 1/8% senior notes due 2010, $139.5 million of 11% senior discount notes due 2008 and $316.0 million of 11 1/8% senior discount notes due 2007.

RCN also has outstanding $355.3 million of series A 7% senior convertible preferred stock and $1.47 billion of series B 7% senior convertible preferred stock. Series B convertibles not exchanged for stock are owned by Vulcan Ventures Inc. and Wells Fargo & Co.

HSBC Bank USA as indenture trustee for the various series of notes is listed as the five largest unsecured creditors. The sixth is Bombardier Inc. with a trade claim of $194,000.

RCN began preliminary talks with noteholders on restructuring its debt in October although at that point it was looking at repurchase, exchange or retirement of the securities.

In January it deferred an interest payment of $10.3 million on its 10 1/8% senior notes due 2010.

RCN's Chapter 11 case number is 04-13638.

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