WinStar suit may foreshadow other Lucent woes-analysts
By Jessica Hall
NEW YORK, April 18 (Reuters) - WinStar Communications
Inc.'s $10 billion lawsuit against Lucent Technologies Inc.
sparked investors' concerns that Lucent's other vendor
financing deals may collapse and cause further damage to the
already struggling telecommunications equipment maker, analysts
said on Wednesday.
Telecommunications services provider Winstar ,
which in recent weeks reported a string of bad news, filed for
bankruptcy protection on Wednesday, blaming Lucent for
violating a vendor financing agreement and forcing the filing.
"Yes, the $10 billion against them is another piece of
incremental bad news, but just as important is the fact that
another customer has defaulted on Lucent," said Justin
McNichols, portfolio manager with San Francisco asset
management firm Osborne Partners Capital Management.
Lucent called the WinStar lawsuit "absolutely frivolous and
without an ounce of merit." It contended that WinStar breached
the financial covenants of the pact and defaulted on payments.
WinStar could not be immediately reached to respond to Lucent's
comment.
Analysts viewed the lawsuit more as an attempt by WinStar
to assign blame for its failure than as a legitimate legal
argument. Still, the case raised concerns that Lucent, which
aggressively offered vendor financing deals to win contracts,
may face hefty losses if other fragile companies default.
"The parts and equipment guys have been essentially been
lending money to the service guys to buy their products back
from them. That's the problem Lucent and all these guys have,"
Jerome Castellini,president of Chicago investment advisor
CastleArk Management.
Murray Hill, N.J.-based Lucent has already lent Winstar
about $700 million, according to people familiar with the
matter.
As of Dec. 31, Lucent said it had $5.7 billion in vendor
financing commitments and about $1.8 billion had been drawn
down. Only $2.3 billion of its commitments was available to be
drawn, but had not yet been borrowed. Lucent will provide
updated numbers when it reports its second-quarter financial
results on April 24.
While other companies such as Motorola Inc. , Cisco
Systems Inc. and Nortel Networks Corp.
have provided vendor financing, Lucent had been particularly
aggressive in this area, analysts said.
Glenn Reynolds, an analyst with CreditSights.com,
estimated Lucent's total funding guarantees and commitments
represent about 37 percent of its market capitalization -- more
than twice the exposure of Motorola.
"It's the undrawn commitments on Lucent that are alarming
-- they don't have the balance sheet capacity to fulfill all
the draws," Reynolds said.
Lucent faces potential risks in its financing deals with
Leap Wireless Inc. , TeleCorp PCS and KMC
Telecom Holdings Inc., Reynolds noted.
Those pacts could haunt the equipment maker at a time when
it is struggling to carry out a $1.6 billion restructuring and
recover from manufacturing woes, management turnover and
intense competition in a slowing economy.
Ultimately, the WinStar lawsuit may be more of a nuisance
than a harbinger of other bad news, analysts said.
"To say that WinStar is going belly up because Lucent
stopped giving them money may be technically true because they
stopped getting cash, but they are really going belly-up
because they didn't prove their business case and weren't
getting money from anywhere else either," said one industry
analyst who declined to be named.
Shares of Lucent closed up 42 cents, or 5.87 percent, to
$7.56 on the New York Stock Exchange. Trading in shares of
WinStar shares are halted by the Nasdaq Stock Market, which
requested more information from the company.
REUTERS
Rtr 22:23 04-18-01 |
