A billing discrepancy is to blame for a disastrous subscriber and revenue miscalculation that could potentially force Arch Wireless Inc., the nation’s largest paging and messaging company, into bankruptcy.
Arch announced last week it is retracting its last-ditch-effort plan to restructure its burgeoning debt and interest payments because of an unforeseen and almost unbelievable decline in subscriber numbers-close to 1 million-and the resulting loss of revenue. Arch said it has to withdraw the plan because it was based on subscriber and revenue numbers that no longer match up with reality.
The company initially expected to lose 790,000 one-way paging subscribers in the second quarter-a number accounted for in the reorganization plan-but now the company expects to post a loss of 936,000 subscribers during the three months, which is a little under 10 percent of the company’s total subscriber base. While Arch said it likely will gain 61,000 two-way subscribers during the quarter-customers who generate Arch. “That is what triggered the withdrawal of our exchange offer.”
Under the note exchange reorganization plan, Arch had hoped to cut its interest payments as well as eliminate a substantial amount of debt. The company owes its lenders more than $1 billion. Arch also had included a potential pre-packaged plan for reorganization under Chapter 11 bankruptcy-which mirrored the initial note exchange plan-to indicate the severity of its position.
In last week’s release, Arch said it will update its business plan to take account of the staggering decline of one-way paging subscribers, and would “evaluate its restructuring options” after the revision. Arch again warned that it may not be able to continue as a going concern-a statement that echoes previous Securities and Exchange Commission filings and is ominous with bankruptcy overtones. In addition, Arch said it will default on about $8.3 million in interest payments and that its business prospects remain uncertain.
“The company i stands today, Gill said, Arch likely will not file another reorganization plan, but will head straight into bankruptcy. The best case scenario for Arch is that it will enter bankruptcy with a prepackaged plan for reorganization, a move many agree offers the best chance for a company to exit bankruptcy intact.
Lougee said he could not comment on whether Arch would refile a plan for reorganization outside of bankruptcy, but he said the company was considering all of its options.
“Our priority right now is to restructure the company,” he said. “Secondarily, it’s to grow our two-way business.”
