Two investor lawsuits against AT&T Canada dropped as struggling CLEC restructures

The ongoing struggle to put AT&T Canada Inc. back on solid financial footing gained strength last week when two lawsuits filed against the CLEC were dropped by the plaintiffs. The company is hopeful it can proceed with its planned reorganization. Last March, an ad hoc committee of more than 20 bondholders was formed to express their concerns with the business practices and financial prospects of AT&T Canada (NL Update, Mar. 18/02). Two months later, the group launched legal action against the telco, but dropped the suit last week. A similar suit, initiated by American hedge fund the Costa Brava Partnership III LP late last week, was discontinued the day after the first suit was dropped. "We’ve been saying all year that we’ve been working on a three-step plan to ensure that we are a strong, long-term competitor in this market," Ian Dale, VP corporate communications at the CLEC, tells Network Letter. "And the first leg of that has been improving our operating efficiencies and that has been the difficult decisions with letting staff go, reducing our capital expenditures, fine-tuning our service delivery, that sort of thing. The second part is the regulatory playing field, and our efforts towards making that a more level regulatory playing field. And the third thing is working towards a viable capital structure." The ad hoc committee and the company have been in intense negotiations for the past few months. The group, represented by the Bingham Dana LLP law firm in the U.S., held nearly US$1 billion of the $4.5 billion in public debt owed by AT&T Canada. (Bingham Dana has since merged with a smaller law firm and is now known as Bingham McCutchen.) As a sign of good faith, the committee agreed last August to put the lawsuit on hold as discussions continued. When both sides reached an understanding, the case was halted. Dale is adamant that the company did not have to make major concessions to win the bondholders over to its side. "We’ve been quite consistent in laying out that three-step plan and working with all stakeholders involved here: the bondholders, the banks, our shareholders, namely AT&T, about creating a viable capital structure," he insists. "So that work has been underway since July on the capital structure aspect of it. And we’re making good progress in those discussions." When the Costa Brava fund suit was announced, AT&T Canada said the group did not seem to understand the nature of the deposit receipt agreement. The telco had been planning to ask for a dismissal of the case. "The lawsuit by Cost Brava fails to recognize that the deposit receipt agreement is an agreement between AT&T Corp. and the deposit receipt holders," the Toronto-based CLEC said in an Oct. 2 news release. "This is completely separate from the obligations between AT&T Canada and the bondholders of the company." That warning apparently convinced officials at the hedge fund to go back and study the agreements in greater detail. After re-examining the documents, it decided it had misinterpreted the deal and withdrew the suit. In a related development, AT&T Corp. confirmed on October 4 that it will pay $51.21 a share for all of the outstanding stock in the Canadian company it does not currently hold. The sale of deposited shares is expected to be completed this week. Under the deposit receipt agreement, first announced in June 1999, the American telco agreed to pay either the floor price ($51.21) or the fair market value price, whichever is greater. An appraisal done by Morgan Stanley ruled the floor price was the better option for shareholders. Two subsidiaries of the Canadian Imperial Bank of Commerce agreed to purchase the outstanding shares for AT&T Corp. (NL, July 3/02). They are holding the stock to get around ownership restrictions from the federal government.

Two investor lawsuits against AT&T Canada dropped as struggling CLEC restructures

News | 10/08/2002 4:00 am EDT

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