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The beleaguered paging operator Metrocall Inc. filed for bankruptcy Monday, June 3, a year after a proposed Chapter 11 merger with an industry rival, Weblink Wireless Inc., broke down after the companies’ creditors and bank lenders failed to agree on a restructuring plan. Alexandria, Va.-based Metrocall said that because of an agreement with its creditors and bank lender, the company expects to emerge from bankruptcy in the fall. In a Chapter 11 filing with the U.S. Bankruptcy Court in Delaware, Metrocall said the prenegotiated bankruptcy plan would eliminate debt totaling $937 million. The company also said it would not need debtor-in-possession financing to sustain current operations. The plan calls for the company to issue several new securities to pay back $133 million in secured bank debt. Metrocall’s bankers would receive a $60 million secured note at the operating company level and a $20 million unsecured note at the holding company level. In addition, the company plans to issue preferred stock worth $60 million, of which $53 million would go to the bank group while $5 million would go to unsecured creditors. Unsecured creditors, meanwhile, would exchange $627 million in debts for 58 percent of new equity; the remaining equity would go to secured creditors. “Once the banks have been paid off, the majority of the ownership of the company will shift to bondholders,” said Vince Kelly, Metrocall’s chief financial officer. “This goes back to our original theory that if the banks are paid, they should own the company.” The newly reorganized Metrocall would be a smaller version of the company that grew quickly during the early and mid-1990s when one-way paging became popular. Kelly says Metrocall’s business plan will use its core one-way paging customers to pay off debts while cutting overhead. The company’s employee base, Kelly said, will have fallen from 3,600 employees at the beginning of 2001 to 2,000 employees by year’s end. Revenue has dropped from $571 million in 1999 to $524 million in 2000, $477 million in 2001 and a projected $377 million in 2002. “The business will continue to erode, but as we move more into business services, one-way paging services still represent compelling value to those who don’t want to spend money on wireless phones,” Kelly explained. Metrocall, like other standalone paging operators, has suffered reduced revenues in recent years as beeper users switched to national cellular telephone providers. The core of the company’s operations remain its one-way messaging services though it has expanded in the past year into two-way interactive voice and data messaging, and wireless e-mail products. The company reported assets of $189.3 million. According to a court filing, the company’s senior secured lenders, led by Toronto-Dominion, Bank of America Corp., First Union Corp. and Morgan Stanley and an unofficial committee representing bond holders have indicated their intention to support the restructuring plan. A year ago, Metrocall’s creditors could not agree on a plan that would allow it to file for bankruptcy concurrently with Weblink and then carry out a merger. Ultimately, Metrocall’s creditors would not agree to split equity in a new company evenly with those of Weblink. In May 2001, Weblink filed for bankruptcy and has yet to emerge. If Metrocall can successfully move through the bankruptcy process by the fall, it would follow another industry rival, Arch Wireless Inc., which emerged from Chapter 11 protection last week. The Westborough, Mass., paging company’s creditors agreed to wipe out debt worth $1.37 billion in exchange for $300 million of new paper and roughly 90 percent of equity in a new company. The new notes will be spread over two tranches of secured debt. The Blackstone Group advised Arch in its reorganization. Since first quarter 2001, Metrocall has acknowledged that it would likely have to file for bankruptcy. When the company failed in March 2001 to make an $81 million interest payment to service debt, the only question was when it would have to file. Because it choose not to make the payment to senior subordinated note holders, Metrocall said its cash flow from operating activities increased $16 million to $55.8 million for the 12 months ending Dec. 31, 2001. Metrocall’s plan is intended to place the company’s four operating subsidiaries into a single entity, and transfer the company’s intellectual property and government wireless licenses into a separate holding company. Metrocall’s bankruptcy filing was handled by New York’s Schulte Roth & Zabel, Chicago-based Winston & Strawn and Los Angeles’ Pachulski, Stang, Ziehl, Young & Jones. Copyright �2002 TDD, LLC. All rights reserved.

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