Maxcom files for Chapter 11 protection

September 2013 | DEALFRONT | BANKRUPTCY & RESTRUCTURING

Financier Worldwide Magazine

In order to implement its previously announced recapitalisation and debt restructuring plan, on 24 July Mexican telecommunications firm Maxcom Telecommunications SAB filed for pre-packaged Chapter 11 bankruptcy protection.

In its bankruptcy filing Maxcom, based in Mexico City, listed debts of $402.3m and total assets of around $11bn. Fourteen of the company’s affiliates also simultaneously filed for bankruptcy protection.

Maxcom filed for Chapter 11 protection at a US bankruptcy court in Wilmington, Delaware, as it makes its second attempt to restructure $200m of senior debt and secure a $45m private equity capital infusion from Ventura Capital Privado. The restructuring will also see the investor group bid publicly for Maxcom’s remaining outstanding shares. The deal with Ventura effectively hands control of the company over to a group of investors led by the private equity firm.

A previous attempt to conclude a deal with Ventura had proved unsuccessful as an insufficient number of Maxcom’s senior noteholders agreed to the deal conditions. The pre-packaged restructuring deal essentially includes the same terms, but this time under Chapter 11 protection. Under the proposed terms, 80 percent of the company’s existing notes would be exchanged for new notes with reduced coupon payments and extended maturity. The new notes will also be unconditionally guaranteed, paying out between 6 and 8 percent per annum until they reach maturity in 2020. The company’s senior noteholders will also receive cash for unpaid interest and the right to pick up any additional equity that is not associated with any current equity holders.

Maxcom stated that the company’s creditors had already voted in favour of the pre-packaged restructuring deal. As of the voting deadline of 23 July, over 98 percent of senior noteholders, holding 93 percent of notes, accepted the plan. As a result, the company expects to exit bankruptcy relatively quickly. Maxcom said in its bankruptcy filing that “Creditors and all parties in interest will benefit from the swift consummation of financial restructuring and hope to emerge from Chapter 11 as quickly as possible”. Maxcom’s desire for a swift emergence from bankruptcy protection stems partly from the stigma attached to the process in Mexico. The widely held belief is that any company entering Chapter 11 bankruptcy protection is actually undergoing liquidation, rather than restructuring.

The company had been considering bankruptcy protection since June when it missed a scheduled $11m interest payment on outstanding senior debt. However, it does not expect the restructuring process to “adversely affect Maxcom’s customers, employees or vendors. Throughout the restructuring Maxcom intends to continue business as usual. All telecommunications services will continue without change or interruption, and employees and vendors will be paid in the normal course of business.”

Founded shortly after the Mexican telecommunications industry was deregulated in the late 1990s, Maxcom provides telephone, internet and television services to a number of Mexican cities including Puebla, Mexico City, Queretaro, San Luis Potosi, and Tehuacan. Once the company’s balance sheet has been restructured under the Chapter 11 process, Maxcom believes that it will be in a strong enough position to devote the “significant capital needed” to upgrade and expand its network into other Mexican markets.

According to Maxcom, there is currently “unmet demand” for landline, broadband and pay TV services, especially among lower and middle income Mexicans. “With more forgiving debt terms and a new capital infusion, the debtors intend to continue to focus on residential customers and small, medium and large-sized business customers in selected metropolitan areas that offer telecommunications growth potential due to a combination of a large population, low subscriber penetration, and economic growth,” says Gonzalo Alarcón, Maxcom’s general counsel.

Maxcom began to experience financial difficulties as a result of the global economic downturn and in the face of growing competition. The company was particularly affected as mobile phone usage began to increase and fibre optic networks became more readily available. As a result of the firm’s financial strife, Maxcom has previously been unable to upgrade and expand its network, the company said in its bankruptcy filing.

Richard Summerfield