AT&T Canada has reached an agreement with financial and legal representatives of a steering committee on its $4.5 billion proposed restructuring plan in outstanding debt.
The members of the ad hoc steering committee hold approximately 20 per cent of the AT&T Canada’s outstanding public debt.
The restructuring plan is intended to eliminate all of the funded debt obligations of the company. In exchange for the public debt, the telco’s bondholders will receive approximately $200 million in cash and 100 per cent of the new equity of AT&T Canada.
AT&T Canada, along with AT&T Corp. and the bondholder committee, filed an application for an Order of the Ontario Supreme Court of Justice under the Companies’ Creditors Act. The company was successful in obtaining a court order and is able to move forward with its proposed restructuring plan.
The company said it would remain fully operational throughout the capital restructuring process.
While not going so far as to blame the Canadian-Radio television Telecommunications Commission’s (CRTC) recent price cap ruling entirely for its fiscal problems, it did play a factor in where the company currently finds itself financially.
“We (believe in) more competitively neutral access to the telco networks. The regulatory environment is still important to all competitors in this market,” said Ian Dale, vice-president of corporate communications for Toronto-based AT&T Canada.
Prior to the ruling, AT&T Canada was seeking a 70 per cent reduction in what local carriers pay to the incumbent carriers such as Telus Corp. but instead received a 10 per cent reduction in what local exchange carriers now pay. Not satisfied with the decision, the company filed an appeal to Cabinet that remains ongoing.
With nearly 1,300 jobs trimmed at AT&T Canada since May, Dale said the company does not expect any additional losses, and reiterated that it would be business as usual for customers and suppliers alike. In fact, the telco expects that if the proposed restructuring plan were approved, the debt would be completely eliminated by the end of the year.
Given the difficulties the telco industry has faced, “We have taken action on the factors that were in our control,” Dale added. At the beginning of the year, the company highlighted three challenges it faced: improved operational efficiencies, the regulatory environment and a strong capital structure. As two remain ongoing obstacles, the company said it felt it has addressed its fiscal problems.
However, as AT&T Canada remains ambiguous as to how the debt reached such mammoth proportions, Kanata, Ont.-based Research Director Mark Quigley at the Yankee Group in Canada cited several reasons. These include capital expenditures, continued losses, high-interest payments of approximately $400 million to $450 million per annum and the acquisition of MetroNet Communications Corp. back in 1999 by AT&T Corp.
Although he remained confident that the company would survive its current financial woes, the telco has learned a simple yet important business lesson.
“If you want to be profitable you just can’t have that kind of expense on your books, particularly given how competitive the marketplace has become,” Quigley said.