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Classic Emerges With New Owners, $80M

1/05/2003 7:00 PM Eastern

More than a year after filing for Chapter 11 bankruptcy protection, Classic Communications Inc. has emerged with new cash for operations and new owners.

According to Classic's reorganization plan, approved by U.S. Bankruptcy Court Judge Peter Walsh on Dec. 26, the MSO will restructure its debt, allowing bondholders to convert their claims to a 52 percent equity interest in the company.

The bondholders that stand to receive the most equity are OCM Principal Opportunities Fund II — also Classic's largest unsecured creditor and co-author of the amended plan — and Goldman Sachs Credit Partners, a co-author of the plan and the MSO's largest secured creditor.

OCM Principal Opportunities Fund II is a private equity-distressed debt fund managed by Oaktree Capital Management. GSC is affiliated with New York investment bank Goldman Sachs & Co.

Classic will emerge with between $70 million and $80 million in cash: $20 million from a new credit financing and another $50 million to $60 million through the issuance of preferred stock. In previous filings, Classic said the bulk of the proceeds from the preferred stock offering would go toward paying off an existing $30 million debtor-in-possession financing.

In addition, the company's banks will exchange their $200 million in claims for newly issued term notes.

According to previous filings, Classic plans to issue about $60 million in Term A notes, $82 million in Term B notes and $40 million in subordinated notes.

Board call

Company president Dale Bennett will remain in that role and will receive a seat on the reorganized Classic's board of directors. In total, Classic will have seven board members — two appointed by the creditors' committee (attorneys Harry Perrin and Edward Shapiro) and four named by OCM (Oaktree principal Stephen Kaplan, managing director Ronald Beck, managing director B. James Ford and vice president Michael Harmon).

Classic filed for Chapter 11 protection in Delaware in November 2001, listing assets of $711.3 million and liabilities of $641.8 million.

According to its 10-Q quarterly report filed on Nov. 14, Classic had about 325,000 subscribers as of Sept. 30, about 25,000 customers fewer than during the year-ago period.

Revenue increased by $500,000 in the third quarter to $44.9 million, while free cash flow rose to $5.6 million, compared to negative free cash flow of $6.5 million in the prior year. Free cash flow is cash flow once interest payments and capital expenditures have been made.

September