McLeodUSA Seeks Bankruptcy Protection

McLeodUSA Inc., a local telephone and Internet service company backed by buyout firm Forstmann Little & Co., filed a prepackaged bankruptcy plan that wipes out $3.3 billion in debt and gives Forstmann control. Forstmann Little will invest an additional $175 million in the firm and get a 58% stake.

The firm and its senior partner, Theodore Forstmann, have sunk more than $2 billion in McLeodUSA and in money-losing rival XO Communications Inc. Cedar Rapids, Iowa-based McLeodUSA hasn’t made a profit since selling shares to the public in 1996.

Nasdaq trading in McLeod USA shares was halted. They fell 1 cent to 18 cents Wednesday. The stock has tumbled from a high of $35.94 reached in March 2000.