Covad files for Chapter 11 protection
  08/07/2001 9:25:54 PM MDT Albuquerque, Nm
  By Dustin D. Brand; Owner AMO

It's official, Chapter 11 for Covad.   It's been a long and rocky road for CLEC DSL Broadband providers and Covad is no different. Recently, Northpoint filed for bankruptcy and closed, and Rhythms did as well - now we have Covad filing for Chapter 11 protection.

  Covad announced Tuesday that it will file for Chapter 11 bankruptcy protection as part of a restructuring plan to eliminate $1.4 billion in debt and trade cash and stock to bondholders. Covad has a plan to continue operating, but will still need an additional $200 Million to survive.

  Covad's current bondholders will be paid a total of $283.8 million, which is 19 cents on the dollar for the face value of it's high-yeild and convertible bonds. The bondholders will receive preferred stock with a $100 million liquidation preference. The shares will be convertible into about 33 million common shares, representing about 15 percent of the company's fully diluted common stock.

  Covad's public stock was delisted from Nasdaq on July 20, 2001 for trading below $1.00. Covad's parent company, Covad Communications Group, is expected to initiate the pre-negotiated Chapter 11 filing in the middle of this month. Covad's operating companies, which provide high-speed DSL Internet access to customers, are not expected to be included in the proceedings and will be allowed to operate without court-imposed restrictions, enabling them to continue to provide services to customers and generate additional revenue.

  "Covad will be in a much stronger financial position going forward, with no debt and a much smaller cash requirement, if this transaction is successful," said Covad President and CEO Charles E. Hoffman in a prepared statement. "We now believe that once this transaction with Covad bondholders is completed, we will need approximately $200 million more in cash to get us to a positive cash flow position, which we expect will be by the third quarter of 2003."   The deal will leave the company with $250 million in cash to fund the company's operations into the beginning of 2002, when the transaction is expected to be complete.

  Covad says it will be able to maintain day-to-day operations in the company, which include managing its broadband network and providing high-speed Internet and network access to individuals and small- to medium-size businesses.

  We shall see if Covad can be the exception to the rule in CLEC DSL Service and can survive their Chapter 11 intact enough to become profitable.

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   Covad shuts down DSL Networks