GST Telecom: Holders Highly Unlikely To Get Any Value
Wednesday, June 7, 2000 01:05 PM
WASHINGTON (Dow Jones)--GST Telecommunications Inc. (GSTXQ,
news, msgs) says it is highly unlikely that its current
equity security holders would receive any distribution under
any reorganization or liquidation, and that the interest
of both secured and unsecured creditors may be substantially
impaired.
The telecommunications service provider made the disclosure
in a Form 10-Q quarterly report filed early Wednesday with
the Securities and Exchange Commission.
GST said that if the sale of substantially all of its assets
to Time Warner Telecom Inc. (TWTC, news, msgs) is
consummated, "it is highly unlikely that the current equity
security holders of the company would receive any
distribution upon the subsequent liquidation of the company
and the interest of both secured and unsecured creditors may
be substantially impaired."
GST added that "there can be no assurance that any amounts
owed to unsecured creditors will be paid or that secured
creditors will be paid in full."
In the filing, GST also said that cash provided by its
operations won't be enough to fund daily operations of the
business during bankruptcy. The company estimates that it has
enough cash on hand to fund daily operations until the
end of June.
As reported, GST has a commitment from Heller Financial Inc.
(HF, news, msgs) for a debtor-in-possession credit facility
of $50 million and the potential for up to $75 million more.
On May 26, the U.S. District Court in Wilmington, Del., which
is overseeing the bankruptcy case, entered an order approving
the initial $30 million of the DIP financing.
GST said if it's able to obtain final approval of the DIP
financing, it should be able to fund operations until the
sale of its assets has been completed, "assuming that the
sale occurs on the presently anticipated schedule of August
or September."
GST said that if a sale of its assets isn't completed or is
substantially delayed, the company will either reorganize its
operations and seek discharge from bankruptcy, or a complete
liquidation will occur.
The Vancouver, Wash.-based competitive local exchange
carrier, or CLEC, further reported that around $26 million in
proceeds from a conduit lease that it had expected to receive
in May wasn't received because of construction delays.
GST said it estimates that it isn't likely to receive the
proceeds until August, at the earliest.
GST said in its Form 10-K annual report filed on March 30
with the SEC that the anticipated proceeds of a conduit lease
consummated in January, among other things, would enable the
company to fund operations through August.
GST, which filed for Chapter 11 bankruptcy protection on May
17, said the extent of additional financing would depend
on, among other things, the outcome and timing of its
bankruptcy proceedings.
"In the event that our plans or assumptions change or prove
to be inaccurate, we incur significant unexpected expenses,
or our cash resources, together with borrowings under the
contemplated financing arrangements, prove to be insufficient
to fund operations, we may be required to seek additional
sources of capital," GST said.
Furthermore, GST said in Wednesday's filing that previously
reported divestitures and other management activities
designed to prolong capital availability through fiscal 2000
and beyond are now subject to the bankruptcy case.
Because of its bankruptcy filing and the potential
disposition of substantially all of its assets, GST is
considering whether an impairment of assets has occurred
during the three months ending June 30.
GST says that if it's determined that there is an impairment
of assets, it believes that will have a material effect on
that period's consolidated financial statements.
As reported, GST reported a $26.5 million net loss, or 70
cents a share, for the first quarter ended March 31 on $63.7
million in revenue. At March 31, the company had cash and
cash equivalents of $42.4 million for general corporate
purposes, plus $21 million reserved for fixed asset purchases
and future interest payments.
Excluding a $42.3 million net gain on GST's sale of its
Global Light Telecommunications Inc. stock, the company's net
loss would have been $68.8 million for the three months ended
March 31.
On May 5, the company's cash and cash equivalents totaled
$16.8 million, with restricted cash balances of $3.4 million.
GST attributed the decline in cash balances to "deferral of
certain previously anticipated receipts primarily related to
unexpected delays associated with the company's construction
activities and expected asset sales."
GST, which had capital expenses of $37.7 million for the
first quarter, said the capital costs needed to "fuel the
enterprise" and fund construction have strained liquidity.
The company said on March 10 that it planned to reduce its
workforce by about 100 jobs, or 8%.
In Wednesday's filing, GST reported that its reciprocal
compensation revenue more than tripled in the third quarter.
The Telecommunications Act of 1996 requires incumbent local
exchange carriers, or ILECs, to negotiate interconnection
agreements with CLECs so that when a CLEC's customer calls an
ILEC's customer, the CLEC must pay the ILEC compensation, and
vice versa. This is called reciprocal compensation.
GST disclosed that reciprocal compensation revenue totaled
$4.2 million for the three months ended March 31, compared
with $700,000 for the three months ended March 31, 1999.
-Jeff St. Onge; Dow Jones Newswires; Federal Filings Business
News; 202-628-7666; jeff.st.onge@dowjones.com
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