360networks sinks despite debt payment reassurances
By PETER KENNEDY
20:56 GMT-04:00 Tuesday, April 24, 2001
Vancouver — 360networks Inc. shares plunged 25 per cent Tuesday in spite of reassurances from the telecommunications company that it can meet its debt payments, including one for $50-million due May 1.
Reacting to a number of investor inquiries, the Vancouver company issued a statement saying it is in full compliance will all covenants under a $1.2-billion (U.S.) senior secured credit facility.
"As a result of cash on hand, sales contracts with customers and credit facilities available to us, we are comfortable that we can meet such obligations," said Vanessa Wittman, 360networks' chief financial officer.
Despite those assurances, the company's stock price tumbled 81 cents (Canadian) to a new 52-week low of $2.41 on the Toronto Stock Exchange. That's down from a high last year of $35.90.
On the Nasdaq Stock Market, the stock tumbled 53 cents (U.S.) to $1.58.
Company spokeswoman Michelle Gagné said there was no connection between the announcement and reports that the share price of one of 360networks' leading equipment suppliers, telecommunications giant Alcatel SA of France, is being hit by speculation about the Vancouver firm's ability to pay its bills.
Shares of Alcatel, which has invested about $700-million in preferred shares of 360networks, fell $1.05 to $29.65 on the New York Stock Exchange Tuesday.
However, Ms. Gagné said the company was responding more to inquiries about 360networks' debt payments and bank covenants than the decline in Alcatel's stock price.
"We wanted to clarify some misinformation and set the record straight," she said.
Led by former Microsoft Corp. chief financial officer Greg Maffei, 360networks is being closely watched because it plans to spend about $7-billion to build a global fibre-optic network.
This year alone, the company has set a capital spending budget of $3.5-billion in connection with the network, which is designed to carry anything from phone calls to Internet traffic on beams of light that move through strands of glass.
Analysts say investors' concerns stem from negative sentiment in the telecommunications sector that has raised the question of whether there is enough demand for capacity on the company's networks to allow the company to meet its cash revenue target of $2.5-billion set for this year.
"There remains a great deal of uncertainty about their sales forecasts," said Peter Rhamey, a telecommunications analyst with BMO Nesbitt Burns in Toronto.
Mr. Rhamey said investors are also wondering whether the company will be able to retain full access to the lines of credit needed to finance its capital spending plans. "On paper the company does not have a funding gap," he said. "But in the event that they should not meet their sales forecast and miss it by a wide margin, there is an increased risk that they would have this funding gap."
Stuart Isherwood of UBS Warburg in Toronto said it is hard to assess how the company is doing because it hasn't made any big contract announcements. "They have a lot of debt and they are building out a global network so it is a difficult situation for the company," he said.
The company currently has $1.9-billion in long-term debt, which includes $1.4-billion in high-yield notes with a coupon rate of up to 13 per cent.
Analysts said the company's unsecured debt was recently trading as low as 11 cents on the dollar amid fears that the company will be unable to meet $100-million (U.S.) in interest payments on $770-million in senior notes. Half of the interest payments come due May 1.
But Ms. Gagné insisted that the company has the ability to carry out its spending plans. Having drawn down $350-million of the $1.2-billion senior secured credit facility, she said the company still has $1.5-billion in standby credit still available.
"We recognize that these are difficult markets for all of us, but 360networks has always met its debt obligations and we are taking appropriate internal measures to ensure this will not change going forward," Ms. Wittman said.
In the first quarter of 2001, Ms. Wittman said the company completed sales of $475-million to major carriers and network service providers for services on its terrestrial and undersea networks.
More than 50 per cent of the company's global network is now in commercial service, Ms. Wittman said.
Copyright © 2001 The Globe and Mail
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