UPC Bankruptcy Part of Recapitalization Plan

United Pan-European Communications N.V., an arm of UnitedGlobalCom Inc., filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court for the Southern District of New York last week, a move that the company said is the latest step in the recapitalization of the Dutch cable operator.

UPC, the largest cable operator in the Netherlands with 2.5 million subscribers, filed for Chapter 11 protection on Dec. 3. The company listed assets of $7 billion and liabilities of $10.1 billion.

The filing was expected as part of a major recapitalization of the company that would pump an additional $100 million into the company and wipe out more than half of its debt by transferring equity control to its largest bondholders.

Back in September, the company and its largest bondholders agreed to a restructuring that would swap about $5.4 billion in debt for equity in a newly formed UPC. According to that agreement, UGC would swap about $2.5 billion in bonds and other debt for 66 percent of the stock in the new entity, tentatively called New UPC. The rest of the bondholders, owed about $2.9 billion, would receive 32.5 percent equity in the new company. Liberty Media Corp. — which owns about 75 percent of UGC stock — will keep control of the Dutch operator.

The bankruptcy was expected mainly because it allows UPC to force any dissenting bondholders to agree to the debt-for-equity swap.

In a statement, UGC chairman Gene Schneider said that UPC plans to emerge from bankruptcy in March 2003, "with one of the strongest balance sheets in the European media and telecom sector."

While UPC has struggled beneath a debt load it took on as a result of an acquisition binge in the early 1990s, its operations have remained strong.

Revenue for the third quarter was up about 27 percent to $331 million and cash flow was $74.7 million compared to a $38.1 million cash flow deficit in the same period last year.

The news also appeared to soothe UGC investors, who have driven the stock up by nearly 50 cents per share since Nov. 27. The stock has edged up over $3 per share in the past seven days, a significant milestone because it may keep UGC's stock from getting delisted.

Late last month, the NASDAQ National Market System notified UGC that it would be delisted because it did not comply with one of the exchange's requirements that it maintain a stock price of at least $3 per share for 90 consecutive days. UGC hadn't traded above $3 per share since June.

But the stock inched above $3 on Nov. 27 — to $3.19 each — and has been above that mark ever since. UGC has appealed the NASDAQ delisting, which keeps it on the exchange for the time being. In order to qualify again, UGC stock would have to trade above $3 for 90 consecutive days.