IN THE MONEY: Winstar Bankruptcy Fallout Begins
By CAROL S. REMOND
A Dow Jones Newswires Column
(This story was originally published late Thursday)
NEW YORK -- The Winstar Communications (WCII) bankruptcy fallout has begun.
At least two companies owed money by bankrupt Winstar saw their shares get whacked Thursday, likely because of their business relationship with the financially troubled telecommunications company. So, with that in mind, it might be worthwhile for investors to check what other companies might be vulnerable.
One of the early casualties was Advanced Fibre Communications Inc. (AFCI), whose stock at one time was off about 15%. It has since fought back to only a 2.5% loss on the day. The problem? Advanced Fibre said it couldn't recognize $10 million in revenues from sales of products and services to Winstar, which by the way, happens to be its biggest customer. That's about 11% of what Advanced Fibre's revenues would have been if the company had been paid for products shipped to Winstar just three months ago.
Advanced Fibre said in its earning release that "it's very unlikely that (the company) will be paid for product shipped in January 20001" to Winstar.
A quick look at Winstar's bankruptcy filing points to three other publicly traded companies that look small enough to be severely impacted by Winstar's Chapter 11 filing: P-Com Inc. (PCOM), Metromedia Fiber Network Inc. (MFNX) and Ceragon Networks Ltd. (CRNT).
Start with P-Com. Its shares fell 9% Thursday. The company is owed about $5.2 million by Winstar, according to papers filed with the bankruptcy court. More importantly, Winstar was a huge customer - it was responsible for 28% of P-Coms sales in 2000, P-Com said in its 2000 annual report.
A spokesman for P-Com declined to discuss the potential impact of Winstar's bankruptcy in detail and said the company would speak about it when it reports earnings for the first quarter on April 26.
"We realize that we're an unsecured creditor and will do what's prudent," he said. Winstar signed a $62 million purchase order with P-Com last July.
Winstar has about $2 billion in secured debt that will receive preferential treatment in the bankruptcy proceeding ('preferential' in this case means that investors expect to lose about two third of their investment!). Given the magnitude of Winstar's secured debt, it's likely that Winstar's other obligations, such as its $1.6 billion in bonds and unknown amount of trade debt like that owed to Advanced Fiber, Metromedia, Ceragon, P-Com and others won't be repaid.
Metromedia had revenues of $188.2 million for 2000 and its unclear how much business it has with Winstar. But it is owed $10.2 million by Winstar. The company has not made public the date at which it will release its first quarter earnings. A spokesman for Metromedia wasn't immediately available for comment. Its stock was up 6.8% on Thursday.
Ceragon, meanwhile, could get the Winstar blues, big time. We'll find out for sure next week when it reports earnings. But this much we already know - the company recently said it expects first quarter revenue of $12.6 million, "excluding first quarter shipments to a U.S. wireless competitive local exchange carrier (CLEC), which recently announced its intention to halt new network buildout and reduce capital expenditures due to current uncertainty of collection." That CLEC was later identified by Ceragon as Winstar. Ceragon is owed $7 million according to bankruptcy filings. Its stock was up 5% on Thursday.
A Ceragon official in the U.S. wasn't immediately available for further comment.
What is clear is that Ceragon's exposure to the U.S. CLEC sector doesn't stop with Winstar. The Israeli company said in its pre-announcement that it is on the hook for about $100,000 to Advanced Radio Telecom (ART) which said late last month that it would file for Chapter 11 bankruptcy protection. Ceragon also noted that other U.S. CLECs had recently postponed delivery of equipment under previously issued purchase orders.
Now, I'm not saying that Winstar's bankruptcy and the fact that these companies will likely be unable to collect any of the money owed to them will be in itself enough to cripple them.
But if, as is likely the case, the same pattern repeats with other customers, it's possible that at least some of the companies caught in the startup bankruptcy web may have to take large writeoffs or even maybe restructure themselves if large chunk of their revenues become uncollectible.
Carol S. Remond; 201-938-2074; Dow Jones Newswires
carol.remond@dowjones.com |
