Déjà Vu: McLeodUSA Again Emerges From Bankruptcy

For the second time in four years, the embattled CLEC, McLeodUSA Inc., has emerged from bankruptcy.

McLeodUSA first filed for bankruptcy in January 2002 and came out from that process three months later.

This time, the company has wiped out its debt and named new leaders, but left shareholders at a loss for their investments because it has become privately held. Now that the companys stock has been canceled, investors last Friday held shares worth 1 cent apiece when the markets closed.

McLeodUSAs reorganization plan was announced on Monday, but became effective on Jan. 6, when the providers $677 million debt was converted into new equity.

McLeodUSA yesterday said it has named Royce J. Holland as its new CEO. Holland most recently was co-founder, chairman and CEO of Allegiance Telecom Inc., a provider that was acquired by XO Communications in 2004.

The company further has appointed a new board of directors, made up of John Hank Bonde; Donald C. Campion; Eugene Davis; John D. McEvoy; Alex Stadler; and D. Craig Young.

“I am extremely happy to be joining McLeodUSA at this time, Holland said in a statement. I believe that the company’s new financial structure, coupled with its strong suite of products and high-quality service, leaves us well-positioned for success.”

Greg Crosby, group vice president of marketing and communications for McLeodUSA, said the CLEC has several strategies for avoiding bankruptcy repeats of the past. The first strategy is to narrow its focus from residential and business customers to higher-end business customers, especially Tier 1 and above, he said. This does not mean, however, that McLeodUSA is pulling out of the residential or smaller business markets.

We are not selling our customer base, we are not turning them away, Crosby explained. Were actually going to be doing things with our customer base to keep them Were just not aggressively trying to get new residential business.

As part of its new direction as it competes against large providers such as Qwest Communications International Inc. and AT&T Inc. McLeodUSA will sell IP-based products and services, including managed services and data networks, to companies with more than one location. At the same time, the company will shift to operating in markets where it has its own facilities, said Crosby.

Well lease the last mile or connection into buildings in many markets where we have our own fiber, he said. We certainly dont want to try to make a living on UNE-P.

Finally, the CLEC is putting more money into its sales and marketing teams; it will augment its distribution channels to encompass more agents. The company also is looking at offering its goods on a retail or wholesale basis, Crosby said.

McLeodUSA is headquartered in Cedar Rapids, Iowa, and employs approximately 1,700 people, down from nearly 2,300 in June 2005. Crosby said McLeodUSA has no immediate plans to cut more jobs, but could if the company exits certain markets.

In that same month June 2005 the CLEC faced delisting from the Nasdaq because its market value and share prices were too low. Then, in August 2005, McLeodUSAs CEO, Chris Davis, resigned and Ken Burckhardt also stepped down from his positions as executive vice president, CFO and company director. Neither Davis nor Burckhardt specified why they were leaving the company.

AT&T Inc. www.att.com
McLeodUSA Inc. www.mcleodusa.com
Qwest Communications International Inc. www.qwest.com