Pierre: So my question is, quite naturally, how much do they owe Lucent? When is it due? What are the chances it won't get rolled over? Any thoughts on that?
Well, I think that is a fair synopsis! Like I have pointed out from the VF contracts. ERICY and LU are the main funders up to this point! I have calculated ERICY's VF at around 220 million! NT's at around 40 million. So that would leave LU at around 1 Billion. The VF argeement states that repayment is to begin in Q4! Harvey stated in Q3 that they were going to try and roll-over those amounts. In the Q4 release, he stated that LWIN now plans to service the debt, in lieu of the roll-over! So that indicates that some of the involved were hesitant to such an arrangement. In my opinion, many of these VF deals were arranged to act as a "Bridge Loans"! The Vendors such as Lucent leveraged these VF amounts to sell equipment. Back in 1999. The money into the equity markets were "free flowing".. So it may have seemed to be "an acceptable risk". That these operators would find alternate funding "debt/equity markets" to take over these "bridge loans". (Many companies like Airgate did just that!) Both of those markets have dried up. New Vendor Financing deals are almost non-existant. So it appears that Lucent wants out of such activities to lower it's debt, and increase cash! Of course, depending on how badly they want out, might present a opportunity! Cash is King..So they say!
Harvey now has to prove that this business model can get to EBITDA positive, and service it's debt from operations! If he can do so.. Then he may be able to find alternate debt financing under decent terms! He can then go to Lucent and say!! You want out? Here are the terms! At this point, I think Lucent wants out much worse than LWIN wants out! But, I don't think LU wants a default on their hands! If you were Lucent! Would you rather have 70 cents on the dollar cash, and clear the debt off of your balance sheet. Or a default that might result in a nickel? This gets back to the Accuator theory!
So that is my view! Harvey is going to show up at Q1 and pull a rabbit out of his hat! A 50 million dollar EBITDA loss will be "unconvincing"! He has to show up with a little over a Buck or better! Guide to a EBITDA positive Q3! He has the margins in EBITDAM, and he needs to take an axe to the G/A expenses!
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