Verizon Faces Up To $1.3B Chg On Metromedia Investment
27 Jul 08:15
By Christine Nuzum
Of DOW JONES NEWSWIRES
(This item was published late Thursday)
NEW YORK (Dow Jones)--July 31 is a big day for Verizon Communications (VZ).
It is the day the company is slated to release second-quarter earnings. But
more importantly, it is a major funding deadline for a company in which Verizon
has invested lot of money.
Verizon stands to lose as much as $1.3 billion, or 22% of its investment
portfolio, if telecommunications startup Metromedia Fiber Network Inc. (MFNX)
files for bankruptcy. The company might take one step toward that fate if it is
unable to come up with $287 million by July 31. A $350 million credit facility
hinges on that deadline.
In March 2000, Verizon invested $1.7 billion in Metromedia, a company based
in White Plains, N.Y., that builds local fiber networks in metropolitan areas.
The investment consisted of $975.3 million in convertible bonds and $715.4
million in common stock.
Verizon said it has already written off about 20% of its Metromedia
investment. As it became less and less plausible that Metromedia shares would
exceed the $17 conversion price for long, Verizon took charges to earnings
amounting to $356 million for its convertible bond investment. According to a
company spokesman, those charges were recorded in last year's fourth quarter
and this year's first quarter.
In its fourth-quarter report, Verizon took down much of the carrying value of
its remaining Metromedia investment, but characterized the losses as temporary
and therefore not worthy of a charge to earnings. However, an imminent deadline
for Metromedia may eventually force Verizon to move those losses from its
balance sheet to its income statement.
Metromedia must raise $287.5 million from other lenders in order to secure a
$350 million credit facility from Salomon Smith Barney, which extended the
deadline twice from May 15. Salomon's telecommunications analyst, for one,
seems less than optimistic that Metromedia will raise the necessary funds in
the next few days. Salomon downgraded Metromedia to neutral from buy Wednesday,
citing the approaching deadline and the uncertainty surrounding funding.
Without the credit facility, Metromedia doesn't seem to have the funds to
carry it very far. As of March 31, Metromedia had $453 million in cash and
equivalents, down from $1.2 billion at the end of 2000. The company said in its
first-quarter report that the combination of available cash, the pending
facility with Salomon and vendor financing would fund its operations through
March of 2002. However, the prospects for the credit facility seem to be
dimming.
A spokeswoman for Metromedia said the company is "working on" raising the
funds needed for the credit facility, but declined to comment on the
possibility of another extension. She declined to comment on how much is
available in vendor financing.
As of March 31, Verizon had $715 million in Metromedia shares and $619
million in convertible notes, or a total of $1.3 billion, according to the
company's quarterly report.
Verizon took down the carrying value of of its equity investment to $280
million and that of its convertible investment to $558 million at the end of
the first quarter. However, the investment losses, which combined were $496
million, were classified as "temporary" in the quarterly report and therefore
did not affect earnings.
Verizon noted in the report that it may charge those losses to earnings as a
result of "persistent" declines in Metromedia's stock or other "economic and
company-specific factors."
A spokesman for Verizon declined to say if the company expects to record
further charges on its Metromedia investments. He also declined to say if
Verizon plans to provide Metromedia with further funding.
Recently, Metromedia's corporate bonds were quoted at 28 cents to 29 cents on
the dollar. Since Metromedia's corporate bondholders would be paid before its
convertible bondholders in the event of a bankruptcy, the bond prices indicate
that Verizon stands to lose between 72% and 100% of its convertible investment,
not to mention all of its equity investment.
-By Christine Nuzum, Dow Jones Newswires; 201-938-5172;
christine.nuzum@dowjones.com
-Carol Remond contributed to this story.
(END) DOW JONES NEWS 07-27-01
08:15 AM |
