The company’s debtors are looking for at least $366 million to take over the company by mid-November, but are hoping that a sales process will reveal a purchaser able to offer more.
A source close to the process, speaking to Capacity on condition they were not identified, said: “This is market testing to see if someone is prepared to pay more. It’s a relatively modest value for the business.”
Capacity understands the company has enough money to continue to trade until 13 November, when the US Bankruptcy Court in Wilmington, Delaware, meets to listen to proposals.
The deadline is firm, though if there is an active proposal that needs more time for regulatory purposes, that could be accommodated, Capacity was told. “Something has to happen. There is a baseline deal. The company’s customers can be assured that the business will survive.”
That $366 million baseline is precisely one third of the $1.1 billion that two private equity groups were planning to offer for GCX last December, according to Capacity's sources at the time. One of those was I Squared Capital (ISQ), the owner of HGC Global Communications; the other was a consortium of bidders. Capacity does not know whether ISQ or the consortium are still interested.
After fending off bondholders, to which it owes $350 million, since August, GCX said in a statement last night that the latest move is designed to “support its long-term growth and development by reducing bond debt by $150 million” and finding a new owner.
Bill Barney (pictured), chairman and CEO, said: “We appreciate the strong collaboration with our lenders, which has resulted in a plan of reorganization that allows us to honour our commitments to employees, customers and suppliers while also securing a financially strong future for our business.”
GCX says that more than 75% of the company’s lenders have already committed their support. At the end of July, 87% of bondholders gave the company two weeks to settle its $350 million bond debt, and then gave it a number of other two-week stays of execution – but time ran out on Sunday.
Barney said: “We are a fundamentally strong company, providing mission-critical, expertly managed network solutions for telecommunications, global enterprise and OTT customers. The steps we are announcing today will allow us to continue to build on our strengths and emerge as an even stronger employer and business partner.”
GCX said that its move into Chapter 11 of the United States Bankruptcy Code was a voluntary step, designed “to effectuate the plan while continuing to serve its customers as usual”.
It added: “Upon emergence from this process, the company expects to be well-positioned to aggressively pursue its business plan independent of the overhang caused by its corporate parent’s challenges.”
That corporate parent is Reliance Communications (RCom) formerly a mobile operator in India that lost out in the carnage caused by the start-up of Reliance Jio, founded by the brother of the head of RCom. Jio’s low prices led to bankruptcies and mergers throughout the Indian mobile sector.
GCX is being advised by Lazard, the investment bank, on the process. Michael Katzenstein of FTI Consulting has been appointed chief restructuring officer. According to his statement to the court, he has worked on a number of telecoms restructurings, including Nortel, Nextel International and Pac-West Telecomm, and on subsea projects such as Pacific Crossing and others.
GCX has been in limbo for more than a year now, largely because its parent has been stuck in India’s still undeveloped corporate bankruptcy laws. But in the US, GCX will go through a process that is familiar to corporate lawyers, and that will be supervised by a judge.
“It is certain that there is going to be a transaction,” a source told Capacity. “Enough people [from GCX’s creditors] have voted in support.” The only doubt is whether the creditors will take over or whether they will find a buyer – from the telecoms industry or from private equity – prepared to give the creditors more than $366 million.
Documents from the Chapter 11 process are available here.
