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Jobs Watch: Integra promises no layoffs

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Ben Jacklet
Wednesday, August 19, 2009

Maybe you’ve heard the one about the fast-rising Portland company that got snapped up in a “loan-to-own” deal that’s becoming increasingly commonplace as the vultures circle. Maybe you read it last week in this blog, under the category of bad news.

Dudley Slater, CEO of Integra Telecom (one of Oregon’s most successful private companies over the past decade, 700 jobs statewide), took exception to my characterization of his company’s efforts to restructure its debt. In his view, the deal is good news because it cuts Integra’s debt in half and sets a course for growth. But rather than paraphrase his perspective, allow me to print an excerpt from our hour-long conversation Tuesday morning at Integra’s corporate headquarters in Northeast Portland, edited for clarity and brevity.

OB: OK, tell me why this is good news.

Dudley Slater: The reason why this is good news is really pretty simple. This company generates a lot of cash profits, and we look to invest those profits in a couple of areas. We are obligated to cover our debt service. We very much like to grow our market share by investing in our network and hiring new employees. We spend $220 million across those three areas, a lot more if you include payroll, probably $350 million-$360 million, investing in the network, hiring employees and paying off debt. The amount that we are required to spend on debt service just got slashed by an enormous amount. Our debt went from $1.3 billion to $600 million, so the portion of the pie that has been consumed by debt service just got reduced dramatically. So this is great news for employees and people who like to sell us stuff that we put into our network. We are probably one of the biggest infrastructure investors in the state of Oregon and now we have a war chest to increase those investments.

OB: And now a private equity firm is about the take ownership of the company.

DS: As far as private equity goes, I don’t correlate private equity with adverse impact on companies. This company has always been funded by private equity, and as for Tennenbaum [Capital Partners LLC], this is the third time they have invested in this company. We have known Tennenbaum for years. They first invested in 2004 because they like our model. They like that we’re building this network across 11 states and that we offer a unique approach for the marketplace. They’ve been invested in our business model for over five years, and this is really just a continuation of that.

OB: Correct me if I’m wrong, but doesn’t Tennenbaum specialize in companies that are troubled?

DS: No. I don’t think that’s right, at least not in my experience. I’ve been directly involved in three investments Tennenbaum has made in Integra. I would describe their niche as a value investor that looks for higher yield securities, typically with a debt component, and companies that they believe in. I don’t think of them at all as a distressed company investor. If you look at our financial profile over the five years that Tennenbaum has been investing in us, I think it’s very far from a distressed story. We have grown dramatically, from five years ago when we generated about $100 million in revenue, whereas now we are over $650 million. 

OB: Wouldn't the term vulture investor apply to Tennenbaum? Maybe it’s a derogatory term, but doesn't it apply to this situation? Wasn't this a loan-to-own deal?

DS: Well, again, this is the third time we have worked with Tennenbaum, and two out of those three times that was not the case. In this situation, yes, they are converting their debt into a significant equity stake. You can describe that as loan to own, that’s a perfectly fair description. But I would point out that the reason this is happening is we are in the worst recession since the Great Depression, and it’s becoming very common for companies that have been high-growth companies to have to restructure their debt.

OB: The quote in the Wall Street Journal that seemed alarmist was when you said you didn’t have any options.

DS: That was related to the restructuring work that we just completed, and that’s right. We did not have any options. We needed to restructure the debt to make covenants. In a more normal economy you would have the opportunity to consider refinancing your debt or raising new equity. In this climate that was not available. We had to relieve our debt burden, and the quid pro quo is you’re giving ownership to those parties who previously held that debt.

OB: What about the number of jobs at Integra? Has it stayed steady over the past year in Oregon?

DS: Yeah, we have not done any forced layoffs and we don’t intend to. We’ve expanded our sales force and we’ve invested as much or more this year than we’ve ever spent. We are going to invest over $100 million in our network. Our plans are to do more of that. (End of excerpted interview.)

Integra has done nothing but grow since it launched in 1996 following the breakup of the Ma Bell monopoly. It doubled its size in 2006 by buying Electric Lightwave and doubled it again in 2007 by buying Eschelon for $700 million. One of every five businesses in Portland is an Integra customer today. Unfortunately, far too many of them have been cutting back or disappearing. That has slowed Integra's rise and made those two big purchases harder to swallow.

Did Integra bite off more than it could chew when the economy was hot and credit was plentiful? 

Slater says no. “In a relatively early stage industry such as ours, it’s common to have a period of consolidation. Look at the wireless industry. Ten years ago there were dozens of wireless providers. Today there are really only three: ATT, Verizon and Sprint. It’s the same in our industry. That consolidation is normal in a business with a significant network investment. Because Integra has demonstrated that it has a unique service model that is also very profitable, we are the ones who have emerged in the western United States. We have now created the largest alternative telecom provider in the western United States, and it’s all headquartered here in Oregon.”

Can't argue with that. But are the new owners pushing for cost cutting?

Quite the contrary, Slater says: “Cost-cutting will save you a dollar today but you will never be able to grow the business if you are taking your employees out of the business. We need our employees to grow the business. We would be crazy to cut costs now. This industry was a monopoly not long ago, and there’s still plenty of room to grow.”

Again, can’t argue with that. Regardless of who owns Integra and how they came to own it, the business is making money and employing hundreds of people locally, and the CEO is on the record saying there will be no job cuts. If only that were the rule in Oregon rather than the exception.



a saved dollar today
0 #1 ask them about the 4% RIF Dec 03 2009a saved dollar today 2009-12-03 23:34:55
Just laid off along with six others in our department. And heard eliminating entire departments in MN. 4% company wide lay off taking place.
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a saved dollar today too
0 #2 ask them about the 4% RIF Dec 03 2009a saved dollar today too 2009-12-04 19:24:52
Sounds like it didn't take long for Dudley to go back on his word. He obviously has some incompetent
fools compounding his numbers. From what I heard the company has gone down hill since the acquisition of bankrupted Eschelon.
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a saved dollar today also
0 #3 ask them about the 4% RIF Dec 03 2009a saved dollar today also 2009-12-04 19:38:48
In addition to the RIF the company has decided to reduce wages for ALL salaried employees. Does this include the corporate executives?
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Ben Jacklet
0 #4 Executives took pay cuts tooBen Jacklet 2009-12-09 14:45:25
UPDATE: After hearing from several former Integra Telecom employees I contacted John Nee, VP, corporate communications. He verified today that a workforce "realignment" had eliminated about 4% of jobs company wide. He also confirmed that all employees received pay cuts, including executives.

When I spoke with Integra executives in July they were confident that the worst of the economic downturn was behind them. That hasn't been the case, Nee says. "Unfortunately, we haven't seen much improvement... It's lasted far longer than we expected."

Meanwhile, the demand for bandwidth is greater than ever, as more people come to demand instantaneous data delivery. The pressure is on Integra to upgrade its network to keep up with demand, and that takes capital. Nee insists that system reliability and customer service will not be affected by the layoffs.
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Setting It Straight in PDX
0 #5 Not as bad as it seemsSetting It Straight in PDX 2009-12-15 22:37:14
Integra has gone through some changes recently~ Moreso within the past week or two, but it is not THAT bad.

It is unfortunate for peers that I have worked with to be "seperated" from the company, however the PRIMARY goal for any business is to find a solution(s) to ensure that it can/will withstand the "hard times". The position cuts are not THAT drastic. 4% as indicated above~ leaves over 96% still standing (my calculations may be off- but I feel that's a healthy percent and no indication that the company is going downhill).

Integra did a RESTRUCTURE. Yes multiple positions were removed, however other opportunities and positions were created to semi-curb that. YES there were PAYCUTS across the board/all levels/and believe me the difference per individual is will not have me losing sleep... But those pennies add up- and company wide will create additional monies to put back into the company to invest into cutiting edge technologies that I feel may help us become an even STRONGER force and open more doors/opportunities.

I am a "low (wo)man on the totem pole", but it doesn't take a genius to realize... When you're a business, relying on other businesses as your source of income, and these businesses are experiencing the turmoil of todays economy(downsiz ing/closing their doors for indefinite amounts of time, etc)~ you have to take the proactive approach and make the right decisions for the organization as a whole!

I believe Dudley has been HIGHLY optimistic thinking that we'd recover and cutbacks/layoff s would be non-existent(an d I'm sure hundreds of business owners were thinking the same thing SIX months ago and shortly after the presidential elections). He has been VERY open with employees(provi ding monthly updates, doing all-employee quartely conference calls, etc) and tried keeping us in the loop.

I have only worked for Integra for 2 years, and have been doing my research within this timeframe as well. I have worked with some "big names"(ADP, Comcast, Qwest, AT&T/Cingular, etc)but the communication from upper management, straightforward ness, and TRUE open door policy that Integra displays has been SUPERB!

Ben~ thank you for reviewing this information further.

Anyone else reading this article...pleas e make sure that you find out more about Integra before jumping to conclusions. There are MANY qualities and values this company holds that define who WE really are:
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Setting It Straight in PDX
0 #6 Not that badSetting It Straight in PDX 2009-12-15 22:39:05
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Retort to Setting It Straight in PDX
0 #7 Not that bad, but could always be betterRetort to Setting It Straight in PDX 2009-12-16 11:00:01
Your post has no merit. Stay focused on the real issue at hand, RIF!
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Ben Jacklet
0 #8 Ben Jacklet 2009-12-16 15:29:38
The Oregonian's Mike Rogoway added specific job numbers to the story on Monday:

Rogoway describes Integra as the state's largest privately held technology company. One has to wonder how the downturn and the pressure on telecom companies to upgrade infrastructure impact Integra's goal of going public.
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