Maxcom Completing Process of Reorganization under U.S. Chapter 11 Bankruptcy Laws

By Peter Bernstein July 25, 2013

When fixed network facilities-based Maxcom Telecommmuicaciones, S.A.B. de C.V. burst on the scene in 1999 during what were then the go-go years, there were few companies globally that got as much interest and attention. It was entering an under-served market with comparatively low teledensity in general and one that was poised for growth. For years Maxoom was not an insignificant part of that story. 

Using what it called a "smart-build" approach, Maxcom delivers last-mile connectivity to micro, small, and medium-sized businesses and residential customers in greater metropolitan Mexico City, Puebla, Tehuacan, San Luis, and Queretaro, and on a selected basis in several other cities in Mexico.  Services include local, long distance, data, value-added, paid TV, and IP-based services. Unfortunately, as a result of the global recession and facing stiff competition, the last few years have been challenging, and the company was forced to file for Chapter 11 Bankruptcy under the jurisdiction of the U.S. Bankruptcy Court for the District of Delaware.

The good news for customers and a host of Maxcom stakeholders is that the company has announced that it has commenced voluntary prepackaged Chapter 11 cases to implement its previously announced recapitalization and debt restructuring, which, along with significantly reducing its debt service expense, also positions the company for growth, with a US$45 million capital infusion.  

Note holders like what they heard 

 As of the voting deadline of July 23, 2013, over 98 percent in amount and over 93 percent in number of the holders of the 11% Senior Notes due 2014 (the "Senior Notes") that cast ballots voted to accept the Plan.  This includes the company’s major debt holders. These preliminary results exceeded the amount required for the court to approve the Plan, subject to final review and tabulation by GCG, Inc., Maxcom's proposed notice, claims, and balloting agent.

As the company has stated, it does not expect the restructuring to “adversely affect Maxcom's customers, employees, or vendors. Throughout the restructuring, Maxcom intends to continue business as usual. All telecommunications services will continue without change or interruption, and employees and vendors will be paid in the normal course of business.”

The entire restructuring, which is subject to court approval and other conditions, puts Maxcom in the position of emerging from Chapter 11 by early fall.

Positioned for the future?

It is not surprising that all of the news on this is about the short-term viability of Maxcom. This is not to belittle the problems that would occur if the company was to close its doors, but the cash infusion is not likely solve the longer term view of the viability of Maxcom under current ownership. 

As I have written about in the past, I happen to believe that we are in the midst of a massive global restructuring of global network service providers. It is being driven by rapid changes in technology, user tastes and competition from OTTs, as well as by the challenges landline operators face from mobile and cable-backed Wi-Fi and those faced by mobile based on falling ARPU and growing data demands. 

In short, we are at the start of an industry watershed moment. What happens in the next 12-18 months, as traditional network service providers evaluate their key performance indicators (KPIs), which the researchers at Ovum have recently written is something they’d best be doing, will dictate winners and losers for many years to come. This means deciding whether you are going to be a hunter or the hunted. As we all know, sharks circle when there is blood in the water, and, in the case of Maxcom, there are more than a handful of companies who might decide this is a weakened organization in a desirable market that is worth grabbing before someone else does. Add to this that the debt holders might be looking for more peace of mind in the form of a way to have their debt secured, and you can see why Maxcom is a company to watch.

What this event also signifies is the fact that the hunters are running valuation assessments everyday on every desirable target, both in the traditional telecom business as well as in adjacent “growth markets.” We are going to see more companies in trouble and more companies combining based on the belief they can make up in scale and scope what they might be losing at the margins. Big bets are going to be placed, which is why industry restructuring on a massive scale is going to be headline material for the foreseeable future.  

What the next event in industry restructuring is going to be—where, when, by whom and for what reasons—is a great imponderable. What you can be sure of is it will happen, and will so sooner rather than later.    

Edited by Blaise McNamee
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