Lightyear Completes CLEC Buy

On October 7, 2010, Lightyear Network Solutions, Inc. (OTCBB:LYNS, “Lightyear”) announced it had completed its acquisition of SouthEast Telephone, Inc. (SouthEast).  According to the terms of the deal, announced on June 30, 2010 (The Deal Advisor, 7/10, p.8), Lightyear will pay $560,000 in cash, $4,000 in cash for each of SouthEast’s employees who are not offered employment with Lightyear, 200,000 shares of Lightyear common stock, assume approximately $3.77m of secured debt and provide a minimum of $2.0m in invested capital, post-closing, to fund capital needs and network expansion.  The final deal value was $7.2m.  

Pikeville, Ky.-based SouthEast serves approximately 31,000 lines and provides voice and data telecommunications products and services, including local and long-distance phone service and DSL to primarily residential customers.  The company filed for Chapter 11 bankruptcy protection in September 2009. 

Louisville, Ky.-based Lightyear provides an array of network services for residential and business customers, including wireless phones and mobile wireless broadband, dynamic T1, multi-protocol label switching (MPLS), VoIP, frame relay and more.  “We expect this acquisition to be immediately accretive to EBITDA and add significantly to our revenue.  The transaction is consistent with our objective to increase shareholder value through targeted acquisitions that positively contribute to our earnings and the economies of scale of our products and services, as well as through organic growth driven by our highly motivated authorized sales agents,” said Lightyear ceo J. Sherman Henderson III. 

JSICA Observations:  SouthEast was purchased out of bankruptcy and the $7.2m deal value and resulting 0.2x revenue multiple imply Lightyear got a pretty good deal.  Lightyear itself lost nearly $2.6m in the six months ending June 30, 2010.  Pro forma combined, the companies turned in a loss of $2.3m over the same period. So while this deal is a step in the right direction for Lightyear, integrating the two companies and leveraging the scale economies will be keys to moving Lightyear into the black.

Hilliary Gets FCC Approval

The Wireline Competition Bureau has granted approval of the transfer of control of Community Telephone (Community) to Hilliary Communications (Hilliary).  Terms of the deal, announced on July 23, 2010 (The Deal Advisor, 9/10, p.5), were not disclosed. 

Windthorst, Texas-based Community is a rural LEC providing local exchange and exchange access service to approximately 1,500 residential and business customers in six exchanges in Archer and Clay Counties in northern Texas.  Community’s wholly owned subsidiary, Comcell, Inc., provides intrastate and interstate telecommunications services.  Community’s majority owned affiliate, Wintel Fiber Partnership, constructed a 100-mile fiber optic route between Austin and Waco, Texas, and leases these facilities to common carriers and private entities. 

Hilliary, an Oklahoma communications holding company, is affiliated through familial, managerial and ownership interests with Medicine Park, Okla.-based Medicine Park Telephone Company (Medicine Park).  Medicine Park is a rural LEC serving approximately 700 access lines in Comanche County, Oklahoma. 

Bankruptcy End in Sight

The Hawaii Public Utilities Commission issued a Decision and Order approving Hawaiian Telcom’s (HTEL) plan of reorganization on September 22, 2010.  The reorganization plan was previously confirmed by the U.S. Bankruptcy Court for the District of Hawaii.  The company will complete the process and emerge from Chapter 11 within thirty days. 

HTEL is the incumbent local exchange provider in Hawaii and provides a range of communications products and services, including local and long distance phone service, high-speed Internet, and wireless services.  As of March 31, 2010, HTEL served approximately 465k local access lines.  The company filed for Chapter 11 bankruptcy protection in December 2008. Under the plan of reorganization, filed in June 2009, the company will reduce its debt from $1.15b to $300m, with the option of an additional $30m revolving line of credit.  HTEL intends to retain its approximately 1,450 employees.

“We are extremely pleased with the PUC’s approval today, which concludes the regulatory approval process.  Our Plan of Reorganization creates a business structure which allows us to grow and flourish.  In the very near future, we will be announcing and unveiling exciting new plans,” said HTEL ceo Eric Yeaman. 

HTEL has filed Form 10 registration with the SEC as the first step to becoming a publicly traded company, and the company will issue up to 20m shares of new common stock—of which 10m will be issued to holders of senior secured and certain unsecured claims—and 5m shares of preferred stock as part of the plan of reorganization.