360networks plans hit snag
Peter Kennedy
00:00 EST Saturday, Aug 31, 2002
VANCOUVER -- Battered 360networks Corp. hit a last-minute glitch yesterday in its debt restructuring, at the same time as a U.S. congressional committee focused on its dealings with the chairman of fibre-optics rival Global Crossing Ltd.
B.C. Supreme Court approval for the Vancouver-based company's restructuring plan was held up after Telus Corp. launched an 11th-hour claim for $25-million that it says it is owed by 360networks.
The claim, which relates to a 1999 agreement between Telus and an affiliate of 360networks, surfaced yesterday while the company was asking the court to sanction its plan.
Although the plan has received overwhelming support from the company's other Canadian creditors, Mr. Justice David Tysoe delayed his decision until Wednesday in a bid to determine the validity of the Telus claim.
In Washington, meanwhile, the committee's investigation was focusing on whether Global Crossing chairman Gary Winnick used so-called fibre-swap deals with 360networks to inflate the Madison, N.J.-based firm's finances before selling large blocks of stock.
360networks is not accused of any wrongdoing.
Internal e-mails, minutes of Global Crossing's board meetings and interviews with a co-operative former senior executive have raised investigators' "suspicions about possible insider trading" by Mr. Winnick and other executives, said Ken Johnson, spokesman for the U.S. House energy and commerce committee.
Mr. Winnick sold $734-million (U.S.) in stock before the company, which built a worldwide fibre-optic network, filed for bankruptcy protection in January.
Investigators are focusing on a deal with 360networks, which has been operating under protection from its creditors. Mr. Winnick and other Global Crossing directors approved the deal with 360networks on March 30, 2001, the last business day of the quarter, according to minutes of a meeting obtained by the committee.
The transaction was a swap of telecommunications capacity on the companies' fibre-optic networks for which Global Crossing paid its ailing counterpart $50-million in cash. In return, Mr. Johnson said, Global Crossing received "nothing but a bloated financial statement" that appeared to increase its cash revenue by $150-million.
Such swaps, used by Global Crossing and other telecommunications companies, have come under increasing scrutiny as simply being efforts to make the companies appear healthier than they were. Internal e-mails obtained by the committee indicate that Global Crossing executives understood that a major purpose of the swaps was to satisfy analysts' quarterly estimates of the firm's performance.
Burnaby, B.C.-based Telus, meanwhile, said in an affidavit that its claim arises from an agreement that gave it the right to use fibre-optic strands along a route to Seattle from Vancouver, which it never received when the route was not completed.
If Judge Tysoe decides that the claim is valid, results of the vote may have to be rescinded. That would force the company back to the drawing board with its restructuring plan, which also could delay a parallel restructuring that is close to being completed in the United States.
"We heard nothing about this until [Thursday]," 360networks lawyer Michael Fitch said. "What Telus really wants is to mess up our [restructuring] process to get a better settlement of their claim."
360networks, whose chief executive officer is former Microsoft Corp. chief financial officer Greg Maffei, set out two years ago to circle the globe with a network of fibre-optic communications cables.
However, the company was forced to seek bankruptcy protection in the United States and Canada last year after it buckled under the weight of $2.8-billion (U.S.) in debt and plunging prices caused by overcapacity in the fibre-optics sector.
Before yesterday's court appearance, the company was rushing to gain an advantage on competitors such as Global Crossing by resuming normal business operations by October. 360networks' U.S. creditors are scheduled to vote on the restructuring by Oct. 1.
That is why the company's lawyers were so angry after learning about Telus's late claim.
Karen Horner, the lawyer representing Telus at yesterday's court hearing, said Telus abstained from voting with other Canadian creditors after learning that its claim had been disallowed on Aug. 27.
If Telus had voted against the restructuring, it would have been defeated. Telus has said it understands that its claim may have been disallowed in the Canadian restructuring proceedings because 360networks takes the position that it should have been filed in the United States.
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