360networks' lenders shy away
by Leon Lazaroff
Posted 05:50 PM EST, Jul-23-2001
360networks Inc., a bankrupt Vancouver, British Columbia-based broadband-network operator, is having a tough time convincing its bank lenders to finance a restructuring that might allow the company to operate beyond year's end, sources close to the talks said.
Rather than finance the company's restructuring, J.P. Morgan Chase & Co. and TD Capital, a subsidiary of Toronto Dominion Bank, among others, would prefer that 360networks auction all of its assets to pay its debts, roughly $2.6 billion. 360networks has stated that its assets are worth roughly $6.3 billion.
The banks are said to be reluctant to agree to either a new financing package or a debt-for-equity exchange that could allow the company to emerge from bankruptcy.
360networks filed for bankruptcy protection June 28 under the Companies' Creditors Arrangement Act in the Supreme Court of British Columbia. Simultaneously, its principal U.S. subsidiary, 360networks (USA) Inc., filed for protection under Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court for the Southern District of New York.
If 360networks cannot convince its bank lenders to go along with a restructuring plan, the company would have little choice but to liquidate its long-haul fiber-optic lines in North America. As it is, 360networks intends to sell its operations in Europe, South America and Asia, including two valuable underseas cable lines linking New York to Europe and the southern United States to South America as part of its stated plan to focus only on the U.S., Canada and Mexico.
Even then, the company faces the same fiber-optic glut and flat demand that forced it into bankruptcy. "The banks are looking for the most rational way to wind down the business, auction it off," a source said.
Launched in 1998 with an ambitious plan to raise more than $7 billion to build a worldwide fiber-optic network, 360networks boasted that by using newer technologies it would outgrow competitors such as Global Crossing Ltd., WorldCom Inc. and Level3 Communications Inc. Though investors were unsure about 360network's vision at the time of its April 2000 initial public offering, Chase Manhattan Bank and Donaldson Lufkin & Jenrette Capital Funding Inc. led the financing of a $1.2 billion credit facility. Chase has since merged with J.P. Morgan and Credit Suisse First Boston acquired DLJ.
In the year since its IPO, 360networks was stunted by mounting debt and the slowing demand for fiber-optic communications. 360networks sought bankruptcy protection shortly after electing not to pay a scheduled $10.9 million interest payment June 15 on its 12.5% senior notes.
On July 20, the Supreme Court of British Columbia extended 360networks' bankruptcy protection to Dec. 31, technically giving the company's restructuring advisers, Lazard and the New York law firm Willkie Farr & Gallagher, more time to devise a way to finance its $2.6 billion in debt and raise money to continue the construction of a North American fiber-optic network.
Michael Fitch of Vancouver law firm Fasken Martineau DuMoulin llp, which represents the company in Canada, said that although the company had secured a $100 million debtor-in-possession financing package prior to its bankruptcy filing, its $155 million in cash would finance it through the end of the year.
But although the company told the Canadian court that it can continue to operate its network until the end of the year, creditors, customers and other fiber-optic carriers that swap access to each others' lines have grown impatient. More than 1,000 creditors are listed on court documents.
The sudden downfall of 360networks, said Jim Friedland, telecom analyst at Robertson Stephens Inc. in San Francisco, was due largely to the overabundance of fiber-optic providers. Friedland said that between 1996 and 2000, inexpensive capital sparked the construction of 11 "next-generation" broadband networks in the United States and 14 similar systems in Europe.
The flurry of new so-called "long-haul" providers drove down prices for fiber-optic communications and led to the bankruptcy of broadband companies such as New York-based Viatel Inc. and RSL Communications Ltd. of Hamilton, Bermuda.
Network negotiations
Lenders are reluctant to fund the restructuring of financially strapped broadband network operator 360networks Inc., which filed for bankruptcy protection in Canada and the U.S. June 28.
Date Event
1997 Worldwide Fiber begins as telecommunications division of Ledcor Industries Ltd., a private construction company
Feb. 2000 360networks announces all-stock acquisition of Net Rail Inc. Analysts peg deal price at about $50 million. Shares of 360networks trade around $10
8/18/00 Worldwide Fiber spun off as subsidiary under the same name
3/08/00 Worldwide Fiber renamed 360networks
3/20/00 Shaw Communications Inc. invests $100 million in 360networks
3/22/00 360networks files for $952 million IPO
3/24/00 GT Group Telecom Inc. invests $50 million in 360networks
April 2000 Tech stocks begin collapse; Nasdaq falls 32% in one month
4/17/00 360networks shaves about $200 million off planned $1 billion junk bond offering
4/20/00 360networks executes IPO, sells 44.6 million shares at $14 a share, well below company's expected $16 to $18 range
10/31/00 360networks agrees to purchase $1.1 billion worth of Alcatel equipment to build underseas Pacific cable system
5/31/01 Alcatel issues unexpectedly severe profit warning, citing full inventories and its investment in 360networks' trans-Pacific optical-fiber network
6/06/01 Moody's Investors Service cuts 360networks' debt rating from B3 to Caa3, questions its ability to survive
6/13/01 Shares of 360networks hit lows on Toronto Stock Exchange for fourth straight session before closing at 51 cents
6/15/01 360networks announces it will not make $10.9 million interest payment due on its 12.5% senior notes, hires Lazard to advise on restructuring possibilities
6/18/01 360networks cancels Net Rail merger
6/27/01 Will lay off of 44% of its work force
6/28/01 360networks files for bankruptcy
7/23/01 Creditors are gun-shy
Source: The Deal |
