Birch Telecom disclosure statement approved; plan confirmation hearing set for March 22

By Caroline Salls

Pittsburgh, Feb. 15 - Birch Telecom Inc.'s disclosure statement for its plan of reorganization was approved Thursday by the U.S. Bankruptcy Court for the District of Delaware.

The confirmation hearing is scheduled for March 22.

"This represents a key step toward Birch's successful reorganization and keeps us on track to emerge from Chapter 11 by the end of March," chief executive officer Gregory C. Lawhorn said in a company news release.

The company said it also reached a key agreement with AT&T, which will ensure continuous coverage for Birch facility customers, while at the same time maximizing cost savings for the company.

Birch said this commercial agreement is a significant component of the proposed plan and complements two agreements reached in 2005 with BellSouth and AT&T for unbundled local phone service.

The agreement provides Birch with the stable supply of network elements at prices far more favorable than the standard tariff rates allowed by the FCC.

Under the proposed plan, Birch said it also intends to implement a refocused sales strategy that uses a targeted telesales and national account-based approach.

Plan of reorganization details

The plan gives unsecured creditors their share of a creditor trust and is based on a settlement with the company's pre-bankruptcy secured lenders, who will receive 100% of the new stock in the reorganized company.

Distributions to secured lenders and general unsecured creditors depend on whether the lender settlement is approved, as well as objections to the plan of reorganization.

If the lender settlement is approved, the pre-bankruptcy debt will be refinanced as reinstated debt under a $35 million amended and restated credit agreement.

Also, Birch Telecom will release the lenders and agent, while the reorganized company will not release the lenders and agent.

If the bankruptcy court does not approve the settlement, the treatment for secured lender claimants will remain the same, but Birch will not pay the steering committee fees.

The general unsecured creditor trust will be funded by a $2 million avoidance action settlement payment if the lender settlement is approved, for 7% recovery. If the settlement is not approved, the trust will be funded by a $1.65 million avoidance action settlement, for 5% recovery.

Treatment of creditors under the plan includes:

• Holders of administrative, priority tax and other priority claims will receive 100% recovery in cash;

• Holders of $42 million in secured lender claims will receive 100% of the class 2 common stock in the reorganized company;

• Holders of $27.8 million in general unsecured claims will share in the available creditor trust cash for either a 7% or 5% recovery; and

• Holders of old preferred stock, common stock, equity interest and subordinated claims will receive no distribution under the plan.

Birch, a Kansas City, Mo.-based comprehensive voice and data services company, filed for bankruptcy on Aug. 12, 2005. Its Chapter 11 case number is 05-12237.

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