More than two years after it first filed for Chapter 11 bankruptcy protection, MobileMedia Communications Inc. now has two reorganization plans before it to settle its debts-merge with Arch Communications Group Inc. or TSR Wireless L.L.C.
MobileMedia has not voiced support for either plan, leaving the decision up to the courts and creditors. Which plan the creditors choose greatly depends on their vision of the future. They either can get out now and cut their losses, or hang in and hopefully reap greater rewards in time.
According to MobileMedia, the TSR proposal seeks to acquire MobileMedia for a total of $755 million. To do so, the company would have to satisfy both the secured and unsecured creditors’ claims in a manner that is more beneficial than what Arch offers.
Erik Volfing, TSR vice president of finance, said the bid offers to pay secured creditor claims in cash. MobileMedia now owes its secured creditors about $485 million after paying off $170 million in debt obtained through the sale of its tower business. MobileMedia unsecured creditors will be given shares of stock in the combined company, the number of which TSR would not disclose, and rights to buy another $65 million of stock should they choose.
To raise cash for the transaction, TSR proposes obtaining $290 million in cash under a secured senior bank credit facility, $250 million in proceeds from a senior note offering and $150 million in a senior subordinated note offering.
The company said Banc One Capital Markets Inc. and The First National Bank of Chicago both have expressed interest in funding the senior bank facility. TSR also said several investment banking firms have stated a willingness to participate in the various notes offerings.
Arch, for its part, proposes to pay MobileMedia secured creditors $262 million in cash borrowed from its bank facility and another $217 million from proceeds of a stock-rights offer to MobileMedia unsecured creditors
The Arch deal offers all involved a greater stake in the new company the acquisition would create. However, there is more risk involved. Those creditors with faith in the new company’s growth likely will choose this option, betting the combined company eventually will be worth more than $2 a share and, as such, would allow them to recoup their stock price and their debt.
The TSR deal offers less up-front risk but no long-term potential. Secured creditors get paid off in cash, and unsecured creditors are only asked to subscribe to another $65 million, rather than $217 million in the Arch plan. Those creditors who wish to recoup their losses and move likely will opt for this plan.
Should the TSR plan prevail, MobileMedia would remain in bankruptcy protection for several more months as TSR seeks the approval of all appropriate regulatory agencies. Also, TSR would be responsible for the $25 million breakup fee required by Arch, as dictated in the definitive merger agreement between it and MobileMedia.
