Telecom reseller Primus Telecommunications Canada has obtained court protection from creditors as it prepares for its takeover by US telco Birch Communications. The fixed-line operator is also seeking protection under the US bankruptcy code as it works to restructure and deal with steep debt obligations.
Telecom reseller Primus Telecommunications Canada has obtained court protection from creditors as it prepares for its takeover by US telco Birch Communications.
The Ontario Superior Court of Justice has granted Primus protection under the Companies’ Creditors Arrangement Act, appointing FTI Consulting as its court monitor, and issuing a stay of all proceedings against Primus until 18 February.
Primus, which also operates in the US via its Delaware-based PTUS subsidiary and in Puerto Rico, has filed a petition for the Ontario court decision to be recognised under chapter 15 of title II of the US Bankruptcy Code.
Toronto-based Primus announced yesterday that it has entered into an agreement to be acquired by Atlanta, Georgia-based Birch, which provides communications, network and cloud services to business customers. The telco explained that, to complete the sales process, it has begun a restructuring process that requires court approval.
While the purchase price has not been announced, documents filed with the Ontario court state the base price is C$44m (US$31.05m), from which “certain cure costs” and other, less certain amounts will be deducted.
In its application for court protection, Primus, advised by Stikeman Elliott, said its entities are insolvent and therefore unable to meet payment obligations with its senior secured lenders, with whom it has entered into forbearance agreements.
Primus owes BMO, HSBC Bank Canada and ATB Corporate Financial Services C$40.7m (US$28.71m) under a July 2013 credit agreement. It also owes the Manufacturers Life Insurance Company and BMO Capital Partners C$20m (US$14.12m) under a subordinate credit agreement, also from July 2013.
The company said it continues to face “severe liquidity issues due to, inter alia, over-leverage, revenue declines and high capital costs”. Falling demand for long-distance and local fixed-line phone services and pre-paid calling cards and the company’s inability to offer mobile services and compete with service bundles have also contributed to deteriorating EBITDA and operating profits over the past three years, it said.
Primus, acquired by York Capital Management for about US$129m in 2013, reported a net loss of C$830,000 (US$585,397) in FY 2014 and forecasts a net loss of C$13.08m (US$9.22m) for FY 2015.
The company claims to have about 204,000 residential and 23,000 business customers. Its US business accounts for 12% of total revenues.
