================================================================= MCLEODUSA BANKRUPTCY NEWS Issue Number 1 ----------------------------------------------------------------- Copyright 2005 (ISSN XXXX-XXXX) October 31, 2005 ----------------------------------------------------------------- Bankruptcy Creditors' Service, Inc. 215-945-7000 FAX 215-945-7001 ----------------------------------------------------------------- MCLEODUSA BANKRUPTCY NEWS is published by Bankruptcy Creditors' Service, Inc., 572 Fernwood Lane, Fairless Hills, Pennsylvania 19030, on an ad hoc basis (generally every 10 to 20 days) as significant activity occurs in the Debtors' cases. New issues are prepared by Christopher G. Patalinghug, Frauline S. Abangan and Peter A. Chapman, Editors. Subscription rate is US$45 per issue. Any re-mailing of MCLEODUSA BANKRUPTCY NEWS is prohibited. ================================================================= IN THIS ISSUE ------------- [00000] HOW TO SUBSCRIBE TO MCLEODUSA BANKRUPTCY NEWS [00001] BACKGROUND & DESCRIPTION OF MCLEODUSA INCORPORATED [00002] MCLEODUSA'S BALANCE SHEET AS OF JUNE 30, 2005 [00003] COMPANY'S PRESS RELEASE ANNOUNCING CHAPTER 11 FILING [00004] MCLEODUSA INC.'S CHAPTER 11 DATABASE [00005] LIST OF MCLEODUSA'S 20 LARGEST UNSECURED CREDITORS [00006] DEBTORS' MOTION FOR JOINT ADMINISTRATION OF CASES [00007] OVERVIEW OF MCLEODUSA'S CHAPTER 11 PLAN OF REORGANIZATION [00008] MCLEODUSA AGREES TO SELL HEADQUARTERS TO AEGON AFFILIATE KEY DATE CALENDAR ----------------- 10/28/05 Voluntary Petition Date 10/28/05 McLeodUSA Files Prepackaged Plan & Disclosure Statement 11/12/05 Deadline to File Schedules of Assets & Liabilities 11/12/05 Deadline to File Statements of Financial Affairs 11/12/05 Deadline to File Lists of Leases and Contracts 11/17/05 Deadline to Provide Utilities With Adequate Assurance 01/26/06 Deadline to remove actions under FRBP 9027 02/25/06 Deadline to make decisions about lease depositions 02/25/06 Expiration of Exclusive Plan Proposal Period 04/26/06 Expiration of Exclusive Solicitation Period 10/28/07 Deadline to Commence Avoidance Actions Organizational Meeting to Form Creditors' Committees First Meeting of Creditors under 11 USC Sec. 341 Bar Date for filing Proofs of Claim ----------------------------------------------------------------- [00000] HOW TO SUBSCRIBE TO MCLEODUSA BANKRUPTCY NEWS ----------------------------------------------------------------- MCLEODUSA BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. New issues are published on an ad hoc basis as significant activity occurs (generally every 10 to 20 days) in the Debtors' chapter 11 proceedings. The subscription rate is US$45 per issue. Newsletters are delivered via e-mail; invoices, transmitted following publication of each newsletter issue, arrive by fax. Re-mailing of MCLEODUSA BANKRUPTCY NEWS is prohibited. Distribution to multiple individuals at the same firm is provided at no additional charge; folks outside of your firm should set-up and pay for their own subscriptions. Subscriptions may be canceled at any time without further obligation. To continue receiving MCLEODUSA BANKRUPTCY NEWS, please complete the form below and return it by fax or e-mail to: Bankruptcy Creditors' Service, Inc. 572 Fernwood Lane Fairless Hills, PA 19030 Telephone (215) 945-7000 Fax (215) 945-7001 E-mail: peter@bankrupt.com We have published similar newsletters tracking billion-dollar insolvency proceedings since 1990, starting with Federated Department Stores. We provided gavel-to-gavel coverage of McLeodUSA's 2002 chapter 11 restructuring prosecuted by lawyers at Skadden, Arps, Slate, Meagher & Flom before the U.S. Bankruptcy Court for the District of Delaware. 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Name: ---------------------------------------------- Firm: ---------------------------------------------- Address: ---------------------------------------------- ---------------------------------------------- Phone: ---------------------------------------------- Fax: ---------------------------------------------- E-Mail: ---------------------------------------------- (Distribution to multiple professionals at the same firm is provided at no additional cost.) MCLEODUSA BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. New issues are published on an ad hoc basis as significant activity occurs (generally every 10 to 20 days) in the Debtors' chapter 11 proceedings. The subscription rate is US$45 per issue. Newsletters are delivered via e-mail; invoices, transmitted following publication of each newsletter issue, arrive by fax. Re-mailing of MCLEODUSA BANKRUPTCY NEWS is prohibited. Distribution to multiple individuals at the same firm is provided at no additional charge; folks outside of your firm should set-up and pay for their own subscriptions. Subscriptions may be canceled at any time without further obligation. ----------------------------------------------------------------- [00001] BACKGROUND & DESCRIPTION OF MCLEODUSA INCORPORATED ----------------------------------------------------------------- MCLEODUSA INCORPORATED McLeodUSA Technology Park 4200 C. Street SW, P.O. Box 3177 Cedar Rapids, IA 52406-3177 Tel: (319) 364-0000 http://www.mcleodusa.com/ Founded in 1992, McLeodUSA Incorporated is one of the nation's largest independent competitive telecommunications services providers, offering integrated local, long distance, data, Internet and other advanced telecommunications services using Time Division Multiplexing and Internet protocol to homes and businesses in 25 Midwest, Southwest, Northwest and Rocky Mountain states, including Illinois where the Company has its second largest customer base and substantial assets. As of September 30, 2005, the Company had approximately 1,730 employees. For the quarter ended June 30, 2005, the Company had revenue of $159,700,000 and for the year ended December 31, 2004, the Company had revenue of $716,200,000. The Company derived approximately 70% of its total revenues from local and long distance services; 11% from access services; 15% from private line and data services; and 4% from other sources. Approximately 83% of McLeodUSA's competitive communications services revenues were derived from retail sales and 17% from wholesale sales. In April 2002, McLeodUSA completed a prearranged chapter 11 case for the parent holding company only. The Company's operating performance has not met the projections made at the time of the Prior Restructuring and the balance sheet effectuated under the Prior Restructuring remains highly leveraged, Stanford Springel, chief restructuring officer of McLeodUSA, discloses. Road Back to Bankruptcy Court In a nutshell, McLeodUSA didn't achieve the financial projections underpinning their 2002 chapter 11 plan. According to Mr. Springel, the Company's revenues have been declining since 2002. Total revenue for the three months ended June 30, 2005, were $159,700,000, a decrease of $32,200,000, or approximately 17%, from $191,900,000 for the three months ended June 30, 2004. The decline in revenue, Mr. Springel explains, was driven by several factors, including: -- weakness in segments of the telecommunications industry, -- turnover of customers to competitors in excess of new customers acquired, -- reduction in access rates as mandated by the Federal Communications Commission, and -- lower prices for some of its products. In light of the Company's inability to increase revenue and ultimately generate enough cash flow to service the existing level of debt, Mr. Springel says, the Company considered, with the assistance of its advisors, various strategic alternatives available to the Company. The principal alternatives available to the Company were: (a) a sale of the Company (in one or more transactions), or (b) a stand-alone restructuring of the balance sheet coupled with certain operational changes intended to reduce debt- service requirements and to improve free cash-flow to support ongoing business operations and to service substantially lower post-restructuring debt. In early 2005, an informal steering committee of holders of claims under McLeodUSA's Senior Prepetition Credit Agreement and Junior Prepetition Credit Agreement was formed. On March 16, 2005, the Company entered into a forbearance agreement with holders of more than 50% in principal obligations outstanding under each of the Senior and Junior Prepetition Credit Agreements with respect to defaults arising out of, any among other things, the Company's decision not to make scheduled principal and certain scheduled interest payments on its loans. Under the forbearance agreement, the lenders that executed the forbearance agreement agreed not to take any remedial action as a result of those defaults through May 23, 2005. Subsequent forbearance agreements were entered into on May 23, 2005, July 21, 2005, September 9, 2005, and September 30, 2005. The forbearance agreement that was entered into on September 30, 2005, expires on October 31, 2005. The Company also explored the possibilities of selling all or pieces McLeodUSA and solicited interest from potential acquirers. All indications of interest received were for a level of net sale proceeds below the amounts required to pay obligations under the Credit Facilities in full. Mr. Springel relates that only one indication of interest for the entire Company was received, and that indication of interest was withdrawn at an early stage. "As a result, the Majority Prepetition Lenders indicated that they did not support continuation of the sale process and desired to have the Company proceed with a stand-alone restructuring," Mr. Springel says. Thus, McLeodUSA determined not to further pursue the sale process. To enable the Company to maintain sufficient liquidity for operations and to restructure the balance sheet to appropriate levels, the Company and the Majority Prepetition Lenders have negotiated the terms of a stand-alone restructuring. ----------------------------------------------------------------- [00002] MCLEODUSA'S BALANCE SHEET AS OF JUNE 30, 2005 ----------------------------------------------------------------- MCLEODUSA INCORPORATED AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET As of June 30, 2005 ASSETS Current assets Cash and cash equivalents $33,400,000 Trade receivables, net 54,900,000 Prepaid expenses and other 14,700,000 --------------- Total current assets 103,000,000 --------------- Property and equipment Land and buildings 57,000,000 Communications networks 1,007,300,000 Furniture, fixtures and equipment 191,700,000 Networks in progress 26,300,000 --------------- Total property and equipment 1,282,300,000 --------------- Less accumulated depreciation 827,900,000 --------------- Net property and equipment 454,400,000 --------------- Intangibles and other assets Other intangibles, net 98,200,000 Other 18,400,000 --------------- Total intangibles and other assets 116,600,000 --------------- TOTAL ASSETS $674,000,000 =============== LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current liabilities Current maturities of long-term debt $777,300,000 Accounts payable 36,700,000 Accrued payroll and payroll related expenses 14,700,000 Other accrued liabilities 95,300,000 Deferred revenue, current portion 6,800,000 --------------- Total current liabilities 930,800,000 --------------- Long-term debt, less current maturities - Deferred revenue, less current portion 17,900,000 Other long-term liabilities 62,300,000 --------------- Total liabilities 1,011,000,000 --------------- Redeemable convertible preferred stock: McLeodUSA Preferred Series A 43,000,000 --------------- Stockholders' equity: McLeodUSA Common, Class A 2,000,000 McLeodUSA Common, Class B 800,000 McLeodUSA Common, Class C 300,000 McLeodUSA Preferred Series B - McLeodUSA Warrants 22,600,000 Additional paid-in capital 1,081,400,000 Accumulated deficit (1,487,100,000) --------------- Total stockholders' deficiency (380,000,000) --------------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $674,000,000 =============== ----------------------------------------------------------------- [00003] COMPANY'S PRESS RELEASE ANNOUNCING CHAPTER 11 FILING ----------------------------------------------------------------- McLeodUSA Receives Broad Lender Support for Reorganization Plan * Company Files Prepackaged Chapter 11 Plan of Reorganization * Customers, Employees and Trade Creditors to be Unaffected * Lending Group Confirms Commitment to Additional Financing * No Recovery for Preferred or Common Stockholders CEDAR RAPIDS, Iowa -- October 28, 2005 -- McLeodUSA Incorporated, one of the nation's largest independent, competitive telecommunications services providers, announced today that it has received the support of the majority of its lenders representing more than 90% of its debt for its previously announced prepackaged plan of reorganization. As a result, the Company and its subsidiaries have filed voluntary petitions for Chapter 11 protection with the U.S. Bankruptcy Court for the Northern District of Illinois. McLeodUSA's prepackaged reorganization plan should allow it to complete as quickly as possible a restructuring of its approximately $777.3 million in debt, plus interest, while continuing to maintain normal business operations for its more than 320,000 customers nationwide. During the bankruptcy proceedings, the Company expects to operate its business in the ordinary course, without disruption to its employees, customers or suppliers. The Company has approximately $27 million in cash available as of the date of filing, and has secured a commitment from its lenders for debtor- in-possession financing of up to $50 million, to be replaced upon the Company's exit from bankruptcy with a new $50 million revolving credit facility. The Company's approximately $677.3 million of secured Junior Debt, plus accrued interest, will be converted into 100% of the Company's equity, and the Company's existing $100 million in secured Senior Debt will be cancelled and replaced with a $100 million term facility. All of the Company's existing Preferred and Common stock will be cancelled, and holders of that stock will have no recovery. The Company is requesting bankruptcy court approval of its restructuring plan as quickly as possible. However, as previously announced, completion of the restructuring process depends on many factors, including approval by the bankruptcy court of the Company's plan of reorganization, finalizing the proposed exit debt facilities and receiving necessary regulatory approvals. Therefore, a specific date for completing the restructuring process cannot be estimated at this time. About McLeodUSA McLeodUSA provides integrated communications services, including local services, in 25 Midwest, Southwest, Northwest and Rocky Mountain states. The Company is a facilities-based telecommunications provider with, as of June 30, 2005, 38 ATM switches, 39 voice switches, 698 collocations and 432 DSLAMs. The Company today has approximately 1,720 employees. Visit the Company's Web site at http://www.mcleodusa.com/ ----------------------------------------------------------------- [00004] MCLEODUSA INC.'S CHAPTER 11 DATABASE ----------------------------------------------------------------- Lead Debtor: McLeodUSA Incorporated McLeodUSA Technology Park 6400 C Street USA Cedar Rapids, Iowa 52404 Bankruptcy Case No.: 05-63230 Debtor affiliates filing separate chapter 11 petitions: Entity Case No. ------ -------- McLeodUSA Holdings Inc. 05-63231 McLeodUSA Information Services, Inc. 05-63232 McLeodUSA Telecommunications Services, Inc. 05-63234 McLeodUSA Network Services, Inc. 05-63229 McLeodUSA Purchasing, L.L.C. 05-63233 Type of Business: The Debtors provide integrated communications services, including local services, in 25 states. See http://www.mcleodusa.com/ McLeodUSA Inc. previously filed for chapter 11 protection on January 30, 2002 (Bankr. D. Del. Case No. 02-10288). The Court confirmed the Debtor's chapter 11 plan on April 5, 2002, and that Plan took effect on April 16, 2002. The Honorable Randolph Baxter in Wilmington, Del., formally closed the case on May 20, 2005. Chapter 11 Petition Date: October 28, 2005 Court: Northern District of Illinois (Chicago) Judge: John H. Squires Debtors' Counsel: Peter Krebs, Esq. Timothy R. Pohl, Esq. Skadden, Arps, Slate, Meagher and Flom 333 West Wacker Drive, Suite 2100 Chicago, Illinois 60606 Tel: (312) 407-0700 Fax: (312) 407-0411 Financial Condition as of June 30, 2005: Total Assets: $674,000,000 Total Debts: $1,011,000,000 ----------------------------------------------------------------- [00005] LIST OF MCLEODUSA'S 20 LARGEST UNSECURED CREDITORS ----------------------------------------------------------------- Entity Nature of Claim Claim Amount ------ --------------- ------------ JPMorgan Chase Bank, N.A. Bank Loan $677,300,000 270 Park Avenue, 20th Floor As Administrative New York, NY 10012 Agent for lenders Attn: Susan Atkins under the Credit Tel: (212) 270-6000 Agreement dated Fax: (212) 270-0453 as of May 31, 2000 Qwest Trade Debt $5,516,236 c/o CT Corporation 208 South LaSalle St., Suite 804 Chicago, IL 60604 Tel: (866) 705-2500 Fax: (312) 263-3928 Ameritech-CABS Trade Debt $5,262,502 30 South Wacker Drive, 34th Fl Chicago, IL 60606 Attn: Legal Department Tel: (888) 704-2265 Fax: (916) 489-1018 Southwestern Bell Telephone Trade Debt $2,545,542 1 Bell Center Saint Louis, MO 63101 Attn: Legal Department Tel: (314) 235-9800 Fax: (916) 489-1018 US West Communications Trade Debt $1,795,940 1420 Avenue North 1600 Fifth Seattle, WA 98101 Tel: (208) 677-5000 Fax: (208) 677-5200 UUNet Trade Debt $1,085,462 c/o MCI 4890 West Kennedy Boulevard Suite 440 Tampa, FL 33609 Tel: (800) 695-4405 Fax: (877) 789-3130 Illuminet Trade Debt $904,632 4501 Intelco Loop SE Lacey, WA 98503 Attn: Legal Department Tel: (360) 493-6000 Fax: (360) 486-2732 Emeritus Communications Trade Debt $700,825 14900 Conference Center Drive Suite 400 Chantilly, VA 20151 Attn: Legal Department Tel: (703) 488-4000 Fax: (703) 488-4043 Ameritech Trade Debt $646,414 30 South Wacker Drive, 34th Fl Chicago, IL 60606 Attn: Legal Department Tel: (888) 704-2265 Fax: (916) 489-1018 Sprint Trade Debt $587,630 6391 Sprint Parkway Overland Park, KS 66251 Attn: Legal Department Tel: (800) 829-0965 Fax: (913) 523-0055 Callowhill Management Inc. Trade Debt $442,828 401 North Broad Street Philadelphia, PA 19108 Tel: (215) 922-3110 Fax: (215) 922-0937 National Payphone Clearinghouse Trade Debt $431,687 P.O. Box 145553 Cincinnati, OH 45250 Attn: Legal Department Fax: (513) 721-2646 Verizon Trade Debt $412,664 1095 Avenue of the Americas New York, NY 10036 Attn: Legal Department Tel: (888) 483-2600 Fax: (309) 828-2848 Universal Service Fund Trade Debt $401,522 2000 L. Street, NW, Suite 200 Washington, DC 20036 Attn: Billing & Disbursement Tel: (888) 641-8722 Fax: (888) 637-6226 MCI Telecommunications Inc. Trade Debt $394,451 22001 Loudoun County Parkway Ashburn, VA 20147 Attn: Finance Department Tel: (800) 695-4405 Fax: (877) 789-3130 IBM Corporation Trade Debt $301,817 New Orchard Road Armonk, NY 10504 Attn: Louise Novak Legal Department Tel: (914) 499-7027 Fax: (845) 491-3201 Sprint Trade Debt $247,742 Local Telecom Division 6391 Sprint Parkway Overland Park, KS 66251 Attn: Legal Department Tel: (800) 829-0965 Fax: (913) 523-0055 Illinois Consolidated Trade Debt $247,742 Telephone Company 121 South 17th Street Mattoon, IL 61938 Downtown Properties, LLC Trade Debt $219,833 700 Wilshire Boulevard, Suite 700 Los Angeles, CA 90017 Neutral Tandem, Inc. Trade Debt $171,585 1 South Wacker Drive, Suite 200 Chicago, IL 60606 ----------------------------------------------------------------- [00006] DEBTORS' MOTION FOR JOINT ADMINISTRATION OF CASES ----------------------------------------------------------------- McLeodUSA Incorporated and its five debtor-affiliates ask the Court to approve the joint administration of their Chapter 11 cases for procedural purposes only, and establish a caption for the jointly administered cases. Bankruptcy Rule 1015(b) provides for the joint administration of estates where two or more petitions are pending in the same court by or against a debtor and an affiliate. According to Stanford Springel, chief restructuring officer of McLeodUSA, all of the Debtors are "affiliates" as that term is defined in Section 101(2) of the Bankruptcy Code and used in Rule 1015(b) of the Federal Rules of Bankruptcy Procedure. Mr. Springel relates that McLeodUSA Incorporated is a Delaware corporation that owns 100% of the capital stock of the debtor and debtor-in-possession McLeodUSA Holdings Inc., a Delaware corporation. McLeodUSA Holdings Inc. owns 100% of the capital stock of the debtors and debtors-in-possession McLeodUSA Information Services, Inc., a Delaware corporation, and McLeodUSA Telecommunications Services, Inc., an Iowa corporation. McLeodUSA Telecommunications Services, Inc., owns 100% of the capital stock of the debtor and debtor-in-possession McLeodUSA Network Services, Inc., an Iowa corporation. McLeodUSA Network Services, Inc., is the sole member of the debtor and debtor-in- possession McLeodUSA Purchasing, L.L.C., an Iowa limited liability company. Thus, the Debtors are all "affiliates" within the meaning of section 101(2) of the Bankruptcy Code and joint administration of their estates is appropriate under Bankruptcy Rule 1015(b). Moreover, Bankruptcy Rule 1015(b) provides that where two or more petitions are pending in the same court by or against a debtor and an affiliate, "the court may order a joint administration of the estates." The Debtors anticipate that numerous notices, applications, motions, other pleadings, hearings and orders in their Chapter 11 cases will affect many or all of the Debtors. "With numerous Debtors, each with their own case dockets, the failure to jointly administer these cases would result in numerous duplicative pleadings filed for each issue and served upon separate service lists. Such duplication of substantially identical documents would be extremely wasteful and would unnecessarily overburden the Clerk of the Court with voluminous filings," Mr. Springel says. Joint administration of the Debtors' Chapter 11 cases, Mr. Springel points out, will permit the Clerk of the Court to utilize a single general docket for the cases. Additionally, joint administration will permit counsel for all parties-in- interest to include the Debtors' estates in a single caption on the documents served and filed in the cases, thus enabling parties-in-interest in each of the Chapter 11 cases to be apprised of the various matters before the Court. This is not a motion for substantive consolidation of the Debtors' estates, Mr. Springel emphasizes. The rights of parties-in-interest will not be prejudiced by entry of an order directing joint administration of the Debtors' separate Chapter 11 cases. "Each creditor and party-in-interest will maintain whatever rights it has in the particular estate against which it allegedly holds a claim or right. Indeed, the rights of all creditors will be enhanced by the reduction in costs resulting from joint administration," Mr. Springel explains. The Debtors request that all pleadings and papers filed in their cases be captioned: IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION In re: : Case No. 05-B-63230 : MCLEODUSA INCORPORATED, et al., : Chapter 11 : Debtors. : Hon. John H. Squires The Debtors contend that use of this simplified caption, naming McLeodUSA Incorporated as the first of the Debtors, and omitting reference to each of the Debtors' states of incorporation, addresses, tax identification numbers, and previous names, will eliminate cumbersome and confusing procedures, and ensure a uniformity of pleading identification. ----------------------------------------------------------------- [00007] OVERVIEW OF MCLEODUSA'S CHAPTER 11 PLAN OF REORGANIZATION ----------------------------------------------------------------- McLeodUSA Incorporated and its five debtor-affiliates delivered to the Bankruptcy Court their Joint Prepackaged Plan of Reorganization and Disclosure Statement on October 28, 2005. The principal economic terms of the Plan, Stanford Springel, chief restructuring officer of McLeodUSA, relates, provide for the Company's balance sheet to be restructured by: (a) converting Senior Prepetition Lender Claims into New Term Loan Notes; (b) converting Junior Prepetition Lender Claims into 100% of the New Common Stock, subject to dilution by the Management Stock Plan Awards; and (c) canceling the Company's existing Preferred Stock and Common Stock. Importantly, Mr. Springel says, all other unsecured claims, except for the claims held by landlords of a designated group of leases of non-residential real property that the Debtors intend to reject, are unimpaired under the Plan. Under the Plan, holders of the Rejected Lease Claims will be paid 100% of the allowed amount of their claims as determined by Section 502(b)(6) of the Bankruptcy Code. Under the Plan, there are three classes of Impaired Claims: -- Class 4 Senior Prepetition Lender Claims, -- Class 5 Junior Prepetition Lender Claims, and -- Class 6 Lease Rejection Claims There are two classes of Impaired Interests: -- Class 8 Old Preferred Stock Interests and Subordinated Claims, and -- Class 9 Old Common Stock Interests and Subordinated Claims. All other Claims and Interests are Unimpaired: -- Class 1 Non-Tax Priority Claims, -- Class 2 Other Secured Claims, -- Class 3 General Unsecured Claims, and -- Class 7 Equity Interests in Debtors' Subsidiaries Holders of unimpaired claims and interests will be unaffected by the Plan. According to Mr. Springel, the value of the Company is significantly less than the aggregate amount of the Claims held by the Prepetition Lenders, which Claims are secured by substantially all assets of the Company. The Plan essentially provides for the transfer of ownership of the Company to the Junior Prepetition Lenders. At the Debtors' request, Miller Buckfire performed a valuation analysis of Reorganized McLeodUSA. The total enterprise value of Reorganized McLeodUSA was assumed for the purposes of the Plan by the Debtors, based on advice from Miller Buckfire, to be between approximately $255,000,000 to $345,000,000 as of an assumed Effective Date of October 31, 2005. Based on the total enterprise value of Reorganized McLeodUSA's business and an assumed total debt of approximately $125,200,000, cash on hand of $20,000,000 and potential asset sale proceeds as estimated by the Debtors of $61,000,000, the Debtors have employed an assumed range of equity values for Reorganized McLeodUSA of approximately $210,800,000 to $300,800,000. The values are based on information available to, and analyses undertaken by, Miller Buckfire as of September 6, 2005. The Company, with the assistance of Alvarez & Marsal, LLC, conducted a Liquidation Analysis to determine the dollar amount that would be generated from the liquidation of the Company's assets and properties in the context of a Chapter 7 liquidation case. After consideration of the effects that a Chapter 7 liquidation would have on the ultimate proceeds available for distribution to creditors, including: (i) the increased costs and expenses of a liquidation under Chapter 7 arising from fees payable to a trustee in a bankruptcy and professional advisors to that trustee, (ii) the erosion in value of assets in a Chapter 7 case in the context of the expeditious liquidation required under Chapter 7 and the "forced sale" atmosphere that would likely prevail, and (iii) the substantial increase in claims, which would need to be satisfied on a priority basis, McLeodUSA has determined that confirmation of the plan will provide each creditor and equity holder with a recovery that is not less than it would receive pursuant to a liquidation of the company under chapter 7 of the bankruptcy code. McLeodUSA Liquidation Analysis As of June 30, 2005 (in thousands of dollars) Net Book Estimated Proceeds Value Recovery -------- ----- --------- Cash $33,391 $33,391 Accounts Receivable - Net 54,856 41,156 Prepaid Expenses 14,744 - Property, Plant & Equipment - Net 410,412 72,040 Headquarters Sale 28,627 27,300 ATS Sale 15,386 20,500 Other Long term Assets 116,587 7,360 -------- --------- Total Proceeds $674,002 $201,746 -------- --------- Costs & Fees Wind Down Operating Costs 4,393 Trustees Fees 3,367 Professional Fees 8,500 Employee Retention Bonuses 8,278 Total Costs & Fees 24,538 --------- Proceeds Available for Payment of Claims $177,208 ========= Claim Estimated Value Recovery % ---------- --------- ---- Secured Claims: Senior Pre-Petition Lender Claims Exit Facility $108,355 $108,355 100% Junior Pre-Petition Lender Claims Revolver (includes accrued interest) 155,842 15,230 10% Tranche A (includes accrued interest) 156,677 15,312 10% Tranche B (includes accrued interest) 392,003 38,311 10% -------- -------- Total $704,522 $68,853 10% Proceeds Available for Payment of General Unsecured Creditors $0 ======== General Unsecured Claims: Severance 6,837 - 0% Trade Payables 36,706 - 0% Customer Deposits 2,900 - 0% Lease Rejection Claims 65,911 - 0% Asset Retirement Obligations 62,300 - 0% Other Current Liabilities 85,700 - 0% -------- -------- $260,354 - 0% Proceeds Available for Payment of Equity Holders $0 0% ======== The Debtors have already sent a copy of the Disclosure Statement describing, among other things, the proposed reorganization and its effects on holders of claims against and interests in the Debtors, the Plan, and ballots, to each known creditor that was entitled to vote on the Plan. The Debtors established October 28, 2005, as the deadline for receipt of votes to accept or reject the Plan. "The solicitation was an overwhelming success. With respect to Class 4 (Senior Prepetition Lender Claims), approximately 100% in amount and 100% in number voted to accept the Plan. With respect to Class 5 (Junior Prepetition Lender Claims), approximately 97.0% in amount and 97.3% in number voted to accept the Plan," Mr. Springel relates. A full-text copy of the Joint Prepackaged Plan is available for free at http://bankrupt.com/misc/McLeodUSAPLAN.pdf A full-text copy of the Disclosure Statement is available for free at http://bankrupt.com/misc/McLeodUSADisclosureStatement.pdf ----------------------------------------------------------------- [00008] MCLEODUSA AGREES TO SELL HEADQUARTERS TO AEGON AFFILIATE ----------------------------------------------------------------- * McLeodUSA concurrently moving to AEGON office building in Hiawatha, Iowa * Move expected to be completed during second quarter 2006 CEDAR RAPIDS, Iowa -- October 28, 2005 -- McLeodUSA Incorporated, one of the nation's largest independent, competitive telecommunications services providers, today announced that it has reached an agreement to sell its Technology Park corporate headquarters at 6400 C Street SW in Cedar Rapids to Life Investors Insurance Company of America, an AEGON USA Inc. affiliate. The transaction, valued at approximately $27 million, is expected to close by the end of the year, subject to customary closing conditions and receipt by McLeodUSA of required bankruptcy court approvals. McLeodUSA employees currently working at its Technology Park campus will relocate to a leased facility owned by AEGON and located at One Martha's Way in Hiawatha, Iowa. The relocation is expected to be completed during second quarter 2006. "Based on our current business strategy, a smaller facility that continues to provide a professional business environment for our employees simply makes good economic sense," stated Joe Ceryanec, acting Chief Financial Officer of McLeodUSA. "Proceeds from the sale of our headquarters building will be used to pay down a portion of the $100 million term debt facility the Company intends to enter into upon completion of its restructuring." About McLeodUSA McLeodUSA provides integrated communications services, including local services, in 25 Midwest, Southwest, Northwest and Rocky Mountain states. The Company is a facilities-based telecommunications provider with, as of June 30, 2005, 38 ATM switches, 39 voice switches, 698 collocations and 432 DSLAMs. The Company today has approximately 1,730 employees. Visit the Company's Web site at http://www.mcleodusa.com/ *** End of Issue No. 1 ***