Covad to Emerge From Bankruptcy

Four months after filing for Chapter 11 bankruptcy, DSL provider Covad Communications Group is once again striving to be a competitive player in the high-speed Internet market.

In an announcement Thursday, Covad said the U.S. Bankruptcy Court for the District of Delaware approved its reorganization plan, allowing it to exit the bankruptcy around December 20, when the plan becomes effective.

The reorganization plan completes an agreement that cuts $1.4 billion of bondholder debt to $257 million, giving those creditors 19 cents in the dollar, according to the company. Shareholders will retain approximately 80 percent of Covad.

The company, which has about 350,000 DSL customers, had filed under Chapter 11 in August as it sought to stay afloat amid cash-flow troubles.

Chuck Haas, Covad executive vice president of marketing and strategy, said the turnaround was possible because of hard work done by employees even during recent tough times when bankruptcy was becoming inevitable.

The company slashed costs, built its own Internet service provider network, and restructured its debt-burdened balance sheet, giving it the tools needed to survive the bankruptcy filing, he said. Covad has been able to put together upcoming new services, including T-1 service, which is expected to help the company increase its customer base, he said.

Steadily Emerging

The company, which began operations in October 1996, continued to operate under Chapter 11, increasing its base of small business and home customers for its DSL services.

Court approval of the reorganization plan satisfies one of the conditions of a recently announced $150 million funding infusion from SBC Communications.

After restructuring its debt and making other needed changes, Covad is putting its past behind it and returning wiser and leaner, according to Pat Hurley, a DSL analyst at TeleChoice.

"When they went into this Chapter 11, they had already done a lot of their cost-cutting," he said. "They tried to avoid shutting down their network" like other troubled DSL providers have had to do. "I think they can survive," he added.

Key for Covad's future, Hurley said, is continuing to make customer gains in the small- to medium-size business market. "That's an underserved market that Covad is well positioned to address," he said.