Deal made as life support for bankrupt company
SAN JOSE — Troubled high-speed Internet provider Covad Communications Inc. signed a $150 million loan and marketing agreement Tuesday with one-time rival SBC Communications Inc.
The deal is expected to provide enough money to keep the company alive until it starts generating positive cash flow, now expected by the second half of 2003.
Covad, which provides digital subscriber line services over phone circuits to 346,000 subscribers in 50 markets, filed for bankruptcy protection in August and struck a deal with bondholders to erase $1.4 billion of debt.
After Tuesday’s announcement, shares of Santa Clara-based Covad jumped 29 cents, or more than 30 percent, to $1.15 on the OTC Bulletin Board. The company was delisted in July from the Nasdaq Stock Market.
Shares of SBC fell 54 cents to close at $37.40 in trading Tuesday on the New York Stock Exchange.
“This infusion of capital will be one of the final steps in our plan toward financial stability for Covad,” said Charles Hoffman, Covad’s chief executive.
The deal replaces a $600 million, six-year agreement reached with San Antonio-based SBC in September 2000. It does not increase SBC’s ownership in Covad, which is now about 5 percent.
Under the new deal, SBC will make a one-time, $75 million prepayment secured by Covad assets. SBC can use the money toward the purchase of Covad services over 10 years.
SBC also will make a $50 million, four-year loan also secured by Covad’s assets. Interest payments will be deferred for two years.
The deal also requires SBC to pay a $10 million restructuring fee and the elimination of a $15 million marketing fee owed by Covad under the previous agreement.
Covad said it expects to move out of bankruptcy later this year.