Hybrid wireless/fiber backhaul provider FiberTower (NASDAQ:FTWR, news, filings) has finally put forth a restructuring plan, but it wasn’t perhaps quite the one shareholders were hoping for. The recession and frozen credit markets left the company high and dry, with insufficient scale to support its debt load and not enough cash to build the rest of the way there. So they froze capex in a clearly untenable situation, began buying back debt at 30 cents on the dollar, and negotiating with large debt holders. The general outlines of their solution will not be surprising to survivors of the last bubble – massive dilution to avoid a worse fate. The company’s stock price had more than doubled since August in anticipation of a more favorable outcome, hence its collapse yesterday back to prior levels. But I’m not really sure what prompted the optimism.
The transaction is complex, but in layman’s terms it goes like this. Fibertower hopes to exchange as much as possible of its 9% convertible debt due 2012 for a combination of new 9% non-convertible debt due 2016 that is senior to the existing debt, a smidgen of cash, and a huge pile of common stock. They will of course follow this up with a 1-10 reverse stock split. If 100% of the existing converts are tendered, the resulting company would have about $125M in debt and about $14M less in cash than whatever the current level is (say $50M? Just a guess). Such levels are perhaps a bit more reasonable for a company with $60M in revenue.
Will this be enough to bring Fibertower all the way to safety? Well, there is no such thing as safety when EBITDA margins are negative, but at least it will bring some sanity to the balance sheet. That will give the company some breathing room to find a pathway to the scale they need for sustainability. It will also offer a bit better job security to employees by pushing the threat of bankruptcy out of the picture for now. Dilution is never fun, but things could easily have turned out for the worse.