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Knology Files Chapter 11 Petition

After an attempt to restructure its debt through a tender offer for bonds failed, Knology Inc. filed a prepackaged Chapter 11 bankruptcy petition in Georgia last Wednesday to get the deal done.

Knology, which has about 150,000 subscribers in five Southeastern states, extended the time period for the tender offer — for $444 million in 11.875 percent senior discount notes issued by subsidiary Knology Broadband Inc. — at least once since July.

Knology had originally set the date of the tender for Aug. 22, and later extended it to Sept. 6, but each time only 93 percent of its bondholders had tendered their shares. According to Knology, 100 percent of bondholders had to agree to the tender offer, or it could not be completed.

Chief financial officer Rob Mills said Knology couldn't identify the holdouts. Filing the prepackaged bankruptcy plan is the only way the company can get the deal done, he said.

"We don't know who those bondholders are," Mills said. "Absent their consent, the only way we can force the deal through is to do a prepackaged plan."

In a statement, Knology president and CEO Rodger Johnson said the Chapter 11 filing was regrettable, but necessary.

"Regrettably, we have to go the prepackaged route, versus the consensual-exchange route, because of a few holdouts," Johnson said in a statement. "We are excited, however, to bring closure to this process and concentrate on growing our business."

Knology's banks and major creditors have consented to the exchange, as well as the prepackaged bankruptcy, Mills added.

"This is just a mechanism to get that last group," Mills said.

He estimated that Knology would emerge from bankruptcy quickly.

"We're looking to be complete with the whole process by the end of October," Mills said.

Knology is not in danger of missing interest payments or servicing its debt. Its first interest payment on the bond debt isn't due until April 2003.

The reason Knology is conducting the exchange offer is merely to clean up its balance sheet for any future expansion, said Mills.

"This is a very proactive approach," Mills said. "We can make the [interest] payments as scheduled. We just approached the market to see if a restructuring was warranted, and everybody agreed it was.

"We've never been in default, we've never missed an interest payment," Mills added. "This was done to put the company on more solid footing."

According to the agreement, Knology would issue about $193.5 million in new bonds to replace the $444 million in old notes. Bondholders would receive about 20 percent equity in the company to make up the difference. The old notes were issued in 1997 to help finance rebuilds to several of its market, Mills added.

Knology has been performing well. In the second quarter ended June 30, revenue was $34.9 million, up 9 percent sequentially from the first quarter and 37 percent compared to the same period last year. Cash flow was $4.7 million, up from $3.8 million in the first quarter and a major improvement over negative cash flow of $704,000 in the prior year.

Knology offers cable, telephone and high-speed-data service in Augusta, Columbus and West Point, Ga; Huntsville, Lanett, Valley and Montgomery, Ala.; Panama City, Fla.; Charleston, S.C.; and Knoxville, Tenn.

Systems in Nashville, Tenn., and Louisville, Ky., are under development, the company says on its Web site.