Offer Aiding Flashcom Wins Nod From Bankruptcy Court

Covad Communications Group Inc., an Internet service provider, agreed to buy about 24,500 customers from troubled Flashcom Inc. in Huntington Beach for as much as $3.5 million in cash and a waiver of debts owed.

Covad will exchange $750,000 in cash and debt forgiveness upfront and as much as $2.75 million more in cash depending on how many Internet users agree to be transferred, Covad said in a press release.

The offer was approved by a U.S. Bankruptcy Court in Santa Ana, where closely held Flashcom has filed for protection.

Covad, based in Santa Clara, sells fast Internet-service connections over telephone lines.

Companies like Flashcom pay Covad to provide the online connections for Internet service, which they in turn sell to their customers. Covad said last week that last year’s sales may be reduced because Flashcom and 18 other Internet providers aren’t paying their bills.

“By buying Flashcom’s customers, the judge is allowing Covad to basically jump in front of the other creditors,” said Sanders Morris Harris Inc. analyst Dan Ross. “But Covad has much bigger issues to deal with.”

Flashcom filed for Chapter 11 bankruptcy protection in December.

On Tuesday, Covad said it is reviewing its Internet service provider contracts, billings, marketing development funds and credits for current and prior periods.

The company also said that an accounting procedure it must now follow will likely reduce last year’s revenue by about $52 million and increase losses before interest, taxes, depreciation and amortization, by about $17 million.

The company had planned to report fourth-quarter and full-year results next Tuesday but postponed that, saying its restructuring plan cost more than previously thought.

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Bloomberg News and Dow Jones Newswires were used in compiling this report.