Restructuring and sale plans to be voted on by debt holders aimed at giving the carrier more breathing room

Mobilicity’s future to be decided May 21

The future of startup wireless carrier Mobilicity will become clearer in three weeks when debt holders will vote on a shakeup plan that involves restructuring debt and a possible sale of the company.

Mobilicity’s parent,  Data & Audio Visual Enterprises Holdings Inc., said Friday an Ontario Superior Court justice has approved the plan to hold two meetings of on Tuesday May 21 where arrangements will be voted on.

The restructuring or sale comes at a crucial time for startups like Mobilicity, which face having to put down millions of dollars by June 11 to be eligible to participate in November’s auction of wireless spectrum.

It could also decide to sit that auction out and wait for other auctions in the coming years when its financial position will be better, using money in the restructuring to strengthen its network. Or, it could use the money to buy AWS spectrum compatible with its own from owners who aren’t using it.

For example, Quebecor Inc.’s Videotron, a Quebec-based cable and wireless carrier, has spectrum covering Toronto that it isn’t developing. Vancouver’s Novus Wireless has promised to set up a wireless network in that city but so far has yet to do so.

Mobilicity offers service in Vancouver, Calgary, Edmonton, the Toronto area and Ottawa.

The Ontario court decision comes after Toronto-based Catalyst Capital Group, which holds some of the carrier’s debt, objected to the refinancing plan announced in February.

On Friday Catalyst issued a news release saying it is encouraged that the court orders maintain the rights of affected parties. However, it added, “Catalyst is concerned that it is hard to see how the proposed plans would provide the capital required for Mobilicity to grow its business, acquire spectrum or provide viable, sustainable services to Canadian consumers. In fact, the conditions on the proposals may result in the opposite outcome.”
The old and new part of Mobilicity’s financing appears to hurt second-lien holders by requiring cancellation of second-lien principal, the Catalyst release also said. “This is a change from the February financing and reduces its adverse impact upon the first-lien debt. This cancellation is necessary if new funds are to be injected into Mobilicity as debt.””Catalyst is very concerned that neither the new financing nor the proposed plans will benefit creditors or result in a successful sale of Mobilicity, which, according to Mobilicity’s court papers, has apparently been attempted for many months.”

Mobilicity said that those entitled to vote at the May 21 meetings will be asked to approve both a recapitalization plan and a sale plan. “These two plans are mutually exclusive,” it added, “though both plans are being pursued in parallel so that one of the two plans can be implemented on an expedited timeline.

“If both plans are approved and the sale plan cannot be completed on the terms contemplated, then the recapitalization plan would be engaged.”

The sale plan provides a structure for an as yet to be determined purchaser to acquire all of the outstanding shares of Mobilicity, the company said. The purchase price received would be applied to repay all of the outstanding first and second lien debt of Mobilicity, with the remainder being used to repay outstanding unsecured debt securities issued by Mobilicity.

Under the proposed recapitalization plan, the company said, the share capital of Data & Audio-Visual Enterprises Holdings Inc. would be reorganized, certain existing second lien notes would be repaid and Mobilicity would receive additional liquidity to enable it to continue operating.

Mobilicity, which paid just over $243 million for its AWS spectrum in 2008, is led by Toronto entrepreneur John Bitove, with investment from U.S.-based venture capital firms

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