Allegiance Telecom reaches agreement with senior bank creditors

📅 November 29, 2002 - Allegiance Telecom, Inc. a leading integrated communications provider which operates Hosting.com, announced that it has reached agreement with its senior bank creditors regarding modifications to its $500 million senior secured credit facility.

Under the agreement, Allegiance obtained a waiver of all existing financial covenants through April 30, 2003 and replaced those covenants during this period with a free cash flow from operations covenant (earnings before interest, taxes, depreciation and amortization less capital expenditures) and a total leverage covenant. Allegiance retains full use of its credit facility other than an initial pay down of $15 million (which may be increased to $25 million under certain circumstances), that will be applied to the initial amortization of the facility scheduled to begin in 2004.
"We are very pleased with this new arrangement," said Royce J. Holland, chairman and chief executive officer of Allegiance Telecom. "For the past year, Allegiance has labored under financial covenants that were no longer appropriate given the shift in the telecom industry from focusing on rapid growth to an emphasis on profitability and cash generation. We will have grown Allegiance's revenue over 45 per cent in 2002 while most other carriers are seeing no growth or declining revenues. Allegiance Telecom plans to continue taking market share because our business opportunity is greater than ever, but we and our senior creditors agree that focusing on free cash flow is a more appropriate measure of success in the current environment. Under our revised plan, Allegiance is targeting positive free cash flow from operations during the second quarter of 2003 while continuing to produce a double digit annual growth rate."
"As we re-orient our business to focus on free cash flow, we plan to bring our balance sheet in line with the investment community's current desire for companies with much lower debt levels," said Tom Lord, Allegiance Telecom executive vice president of corporate development and chief financial officer. "Our debt securities, like debt securities of other telecom companies, are trading at extremely depressed valuations. We believe that now is the time to de-leverage the company with the goal of maintaining our position as having one of the most conservatively financed balance sheets in the industry. While the new covenant package allows Allegiance to immediately focus on free cash flow from operations, we are also working on a permanent comprehensive covenant package and a re-engineering of our balance sheet."
Allegiance reported that, after giving effect to the potential $25 million pay down under the amended senior credit facility, it would have approximately $305 million of cash on hand as of November 27, 2002.