RCN Inc., co-owner of Starpower Communications LLC, the Washington area television, telephone and Internet provider, filed a plan of reorganization yesterday that it said puts the company on track to emerge from bankruptcy by the end of the year.
The telecommunications company, based in Princeton, N.J., filed for protection from its creditors in May, saying it could no longer keep up with the interest payments on its $1.6 billion in debt. The plan, filed yesterday with the U.S. Bankruptcy Court in New York, would eliminate all but about $500 million in debt.
In its filing, RCN said the plan had been endorsed by creditors who have agreed to exchange the outstanding debt for stock in the company when it emerges from bankruptcy. RCN estimates that the stock will pay bondholders between 55 and 75 cents on the dollar. Before it becomes official, the plan must be approved by U.S. Bankruptcy Judge Robert D. Drain and formally voted on by creditors.
The company has 460,000 customers nationwide, including about 40,000 cable television customers and about 20,000 high speed Internet customers in the Washington area.
The reorganization plan was filed just weeks after Pepco Holdings Inc. said it had found a buyer for its 50 percent stake in Starpower. Pepco has declined to name the buyer or the price. "There is nothing new to say at this time," Pepco spokesman Robert Dobkin said yesterday.
In this region, RCN's partnership with Pepco allowed it to run cables along rights of way controlled by the power company. Initially, the company planned to compete widely throughout the Washington area, though it has since scaled back its plans.
Chris R. Roberts, an analyst for Tejas Securities Group, which owns RCN bonds, said the company would be well positioned to compete with larger rivals if it emerges from bankruptcy with a much lighter debt load. The nation's largest telephone companies don't have a television service that can compete with RCN and cable companies are just beginning to offer telephone service. Comcast Corp., for instance, has said it might not offer telephone service for another year.
Roberts also said that he expects RCN to exercise its option to match any offer Pepco receives for its stake in Starpower within 60 days. "I fully expect RCN to fully exercise its right and buy the 50 percent of Starpower," Roberts said.
RCN has said the bankruptcy has had no effect on its ability to provide service to its customers, including Washington area Starpower customers. Local regulators have said Starpower has helped consumers by offering a competitive alternative to dominant players such as Verizon Communications Inc., the nation's largest phone company, and Comcast, the largest cable company in the country, which serves about 1.5 million customers in the Baltimore-Washington area.
Despite its pending sale and the financial troubles of its parent, Starpower continues to sign up customers, according to Donald A. Fishman, general counsel in the office of Cable and Telecommunications, the telephone and cable regulator in the District. "These developments could bring some stability to Starpower," Fishman wrote in an e-mail.
RCN is one of dozens of telecommunications companies that filed for bankruptcy after taking on large amounts of debt during the late 1990s. The company used the money it raised to build sophisticated fiber-optic networks in several markets, including Chicago, Washington and Boston. The networks allow the company to offer customers hundreds of cable channels, high-speed Internet access and telephone service.
As RCN was launching its business, the telecommunications industry was flooded with new competitors, lured to the sector largely by the deregulatory Telecommunications Act of 1996. The sudden influx of competition led to a widespread price war that ultimately forced almost all but the biggest players into bankruptcy.