Winstar may seek bankruptcy protection
By F. Brinley Bruton
NEW YORK, April 17 (Reuters) - Telecommunications company Winstar Communications said on Monday it had defaulted on about $75 million of interest payments and was considering filing for bankruptcy protection, a move expected to revive concerns over the telecoms sector's financial health.
The New York-based company, which on April 5 announced a 43 percent cut in its workforce and a halt of domestic and international network expansion to save money, said it had hired the Blackstone Group LP to advise on restructuring its debt.
The company has $6.3 billion in debt and preferred securities, according to Moody's Investors Service, which downgraded its rating on the company in early April.
"The company is considering all appropriate actions, including the possibility of a reorganisation under Chapter 11 of the U.S. Bankruptcy Code, in order to avoid the significant adverse consequences which the above described defaults could cause," the company said in a statement on Monday.
In addition, the Winstar statement said telecoms equipment supplier Lucent Technologies has declared a default under terms of the company's facility with Murray Hill, N.J.-based Lucent. Winstar said it disputed the claim.
Analysts estimate Lucent has extended about $700 million in financing to Winstar, which uses a nascent fixed-wireless technology that transmits voice and high-speed data service using radio signals rather than traditional fiber optic cables or phone wires.
Lucent confirmed Winstar was in breach of its financial covenants.
"We are clearly saddened by this latest development," a Lucent spokeswoman said. She added that Lucent had offered Winstar several extensions over the last week-and-a-half to allow the company to clear up the default.
Winstar also said the default on Lucent financing in turn could trigger defaults on other lines of credit available to Winstar including the company's bank line of credit.
Winstar's euro bonds, which had already fallen to two percent of face value, were unchanged in European trading after the news, dealers said.
Winstar's 200 million euro 12.75 percent bond due April 2010 was last quoted at two percent of face value.
CISCO, COMPAQ AMONG VENDORS
Moody's said Winstar as of December 31 had about $800 million available under financing and leasing facilities from telecommunications and computer giants Cisco Systems Capital Corp, Compaq Financial Services Corp and Lucent.
If analysts' estimates are correct, Lucent is most exposed among the three to Winstar's vendor and leasing financing.
A report dated April 1 by Deutsche Banc Alex. Brown, one of the largest underwriters of junk bonds, said the implications for Lucent were significant.
"To syndicate that debt (to Winstar) would likely require a massive write-down for Lucent at a time when it can likely least afford it," the report said.
Lucent itself has been fending off fears of financial troubles, and on April 4 was forced to issue a statement denying bankruptcy rumours after its stock dropped to a lifetime low. The telecoms equipment firm has embarked on a restructuring programme that includes 10,000 job cuts.
A Cisco spokesman confirmed the company had a financing deal with Winstar, but said the company "was extremely nominally exposed."
Cisco, the world's biggest maker of gear that powers the Internet, has its own troubles, announcing on Monday it will cut 17 percent of its workforce, take charges of up to $3.7 billion and report disappointing third-quarter profits amid a slowing economy and weaker telecoms capital spending.
Compaq officials could not immediately be reached for comment.
Compaq, Lucent and Cisco are also among the list of companies that provided a $1.02 billion financing package to Winstar in November. The private equity was also contributed by software giant Microsoft, Welsh Carson, Anderson and Stowe, CSFB Private Equity, and Williams Communications Group Inc.
MOODY'S DOWNGRADE TO LOW JUNK
Winstar had been scheduled to make payments on $960 million, plus 200 million euros ($178 million) of debt it sold in March 2000. Moody's Investors Service downgraded the company on April 3 to low junk grades, affecting $6.3 billion in debt and preferred securities.
Jitters about the telecoms equipment industry's balance sheet health has even hit companies like Motorola Inc., the world's second biggest mobile phone maker.
On April 6, the company denied it was facing a serious liquidity problem after its shares dropped to their lowest level in eight years.
Winstar's stock has also had a rough ride. Once a darling of the market, Winstar's shares, at 35 cents apiece on Monday, are nearly worthless after falling from a high of $64.88 on March 27, 2000. Its bonds trade for pennies on the dollar.
The company faces some tough decisions.
"Unless the company can obtain some additional financing, the capital markets will most likely doubt the company's long-term health and keep trading the shares at less than $1," said a report by A.G. Edwards & Sons Inc. dated April 11.
Jason Carley, head of Asian credit research at Merrill Lynch in Hong Kong, said he does not cover Winstar, but that the issues for the company beyond vendor financing were economic and industry fundamentals.
"In general, I don't think contagion through vendor financing is a key worry right now...more important is global growth and the demand for technology."
(Additional reporting by Jonathan Stempel, Eric Auchard and Tony Munroe in Hong Kong and Alex Clelland in London)
06:40 04-17-01 |
