Bell Canada International prepares to wind up operations as it exits Latin market

Even as other telcos are struggling to remain afloat, the global division of a major ILEC is preparing to end operations. Bell Canada International Inc., a subsidiary of BCE, will be holding a special meeting of shareholders and noteholders July 12 seeking approval of its plan of arrangement. As previously announced, the Canadian firm is selling its 42 per cent interest in Latin American telco Telecom Americas (NL, June 3/02). It also wants to sell off its remaining assets and dispose of the resulting capital to all stakeholders. BCI is putting forward a plan whereby it will consolidate its outstanding common shares. BCI shares are currently selling for half a cent on the TSX and the NASDAQ, a further drop from its already low prices (see table). "We expect support for the plan from both noteholders and shareholders," BCI director of finance Marie-Lise Gauthier informs Network Letter in an email. "BCE has already announced its intention to vote in favour of the plan of arrangement." The BCE division blames the current telecom meltdown for its decision. In March, a large Brazilian telco defaulted on $1.6 billion of debt. Telecom Americas’ lenders demanded that its short-term debt be repaid or reduced significantly. At the end of April, that debt was set at US$254 million. At one time, the Canadian firm had hoped to carry on by merely setting a few properties adrift. But the downturn in the international telecom market, coupled with BCE’s change in plans, made that impossible. "Prior to Telecom Americas’ recent liquidity crisis, BCI expected that its outstanding financial obligations would be settled with the proceeds from the future sale of BCI’s discontinued operations, Canbras and Axtel, or through new financings," the firm writes in its notice to shareholders. "However, as a result in part of the global decline in the values and creditworthiness of telecommunications companies generally, and the weak state of the equity and debt markets for emerging market telecommunications companies in particular, the value of BCI’s assets and its ability to raise capital have been negatively impacted. Moreover, BCE has announced that it no longer considers BCI to be a core investment and that BCE does not intend to invest any additional funds in BCI." This is a complete reversal from BCE’s earlier hopes for its international division. At various times over the life of the company, it was being heralded as an effective partner for different ventures. When the conglomerate purchased Telesat Canada, it was expected BCI and the satellite provider would move into the global market (NL, May 11/98). Later on, BCI set its sights on the Asian market (NL, Nov. 22/99). When that failed to be as successful as projected, the telco sold its operations in China and Korea and concentrated on the Latin American sector (NL, July 31/00). Now the firm is selling its stake in Telecom Americas to one of its affiliates in the South American telco. "BCI has negotiated a transaction whereby América Móvil will purchase BCI’s interest in Telecom Americas for a total consideration of approximately US$366 million," the company says. "The Telecom Americas disposition, together with the anticipated proceeds from the disposition of BCI’s remaining assets, Canbras and Axtel, should permit BCI to repay fully the secured lenders, and subject to the resolution of certain contingent claims against the corporation, would likely permit BCI to repay its unsecured creditors and make a distribution to shareholders." América Móvil will pay for the Telecom Americas stake in two ways. On the closing date of the arrangement, it will give BCI US$146 million in cash. The same day, Móvil’s subsidiary Sercotel will issue a US$220 million promissory note to the Canadian company. BCI will be released from contingent liabilities estimated at US$250 million as part of the Telecom Americas transaction. Two lawsuits on docketOne of the chief liabilities is a lawsuit involving Telecom Americas subsidiary Communicación Celular S.A. (Comcel). Plaintiffs are seeking US$70 million in damages over the provision of LD service through VoIP in 1999. BCI is on the hook for the first US$5 million and any damages above US$7.5 million. There is also a class action suit filed on April 29 of this year by former holders of BCI debentures in the Ontario Superior Court of Justice. It seeks $250 million in damages and a further $35 million in punitive damages and other charges. BCI says it believes both suits are without merit and intends to fight them both. It adds the standard warning that there is no assurance it will be successful in its defence.The board of directors is strongly recommending adoption of the plan. Without it, the company would be forced to join the growing list of telcos seeking protection under the Companies’ Creditors Arrangement Act."he acceleration of outstanding indebtedness under the amended and restated credit facility that would result if the Telecom Americas disposition fails to close would result in a cross-acceleration of the high yield notes and the Tess notes guarantee, and BCI would not have sufficient cash on hand to satisfy these obligations," the BCI circular states. "As a result, BCI would be forced to seek creditor protection in insolvency proceedings under the CCAA. Such an eventuality could be detrimental to all BCI stakeholders." Under the CCAA, the courts could force BCI to dispose of its assets without full value being realized. The telco prefers to wind down operations under the provisions of the Canada Business Corporations Act. To that end, it recommends the appointment of Ernst & Young to monitor the plan of arrangement. BCI will continue to operate, with the assistance of E&Y and under court supervision. The board is preparing first to liquidate all of the assets of BCI. That will result in paying all creditors and shareholders out of the funds raised through the sale of assets. Following those two moves, the company will be dissolved. Gauthier tells Network Letter that BCI is helping its soon-to-be-released workers. "Some have already been redeployed in the BCE group and there is a process underway to find opportunities for others," she writes. "We expect that we will find positions for a good number of people out of the 30 employees remaining." After the July 12 shareholders’ meeting, the company is scheduled to be in court July 15 to appoint E&Y as monitor and set the plan of arrangement into operation.

Bell Canada International prepares to wind up operations as it exits Latin market

News | July 3, 2002

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