Buying time, not going out of business
From: DSL Prime - the trade paper of an Internet community
Headlines Jan 17, 2001
"The purpose of our filing is to use the breathing room Chapter 11 provides to sign an agreement with a financially sound strategic partner who is interested in our world-class network, our skilled and dedicated employees and our attractive customer base." (Fetter) Last week, Goldman Sachs denied NorthPoint access to $160M of credit, which required meeting certain financial targets. NorthPoint, like all CLECs, will need cash for at least two more years, as they build a customer base. The best investment bankers in the country thought the plans prudent, and nearly every Wall Street analyst called them a buy last year when the stock was worth $Billions. But the market turned away, and so did the bankers and financing. They sold control of the company to Verizon for $1.3B, including enough cash to carry them to profitabilility, but Verizon backed out of the deal. Now, $38M in debtor in possession financing will let them meet the next few months' payrolls.
Bidders will help them emerge
If Verizon valued the company at $2.6B five months ago, what is it worth now? NorthPoint has 1700 COs across the United States, with a complete operations team and system, as well as 100,000 customers and strategic relations with Microsoft and other ISPs. Qwest plans to build a $3B CLEC, and Nacchio told us they have been looking closely at all three DLECs, just waiting for the right price. MCI also needs facilities across the nation, and almost bought Rhythms last spring. NTT invested $5B for Verio, and a fraction of that would give them a national DLEC to serve those customers, while DT, FT, and Telefonica all are expanding in the US. AT&T presumably won't make a move till it resolves with AOL whether they will share a cable monopoly, but if they don't, AT&T needs the facilities. Sprint has installed as many as 800 DSLAMs already on their own, so probably isn't looking to buy. Verizon, if they don't quickly win the court case, may have the most incentive of all. Surprises could be CLECs like Allegiance or Focal (who share investors), XO, or a dozen others, if the price is right.
$400M of bonds pushed sale to bankruptcy court
Yesterday an investor who bought NorthPoint's stock (total, less than $200M) would also be responsible for $400M of 12 7/8 percent Senior Notes sold February in a private placement. Now, a buyer in the bankruptcy court auction could potentially avoid paying several hundred million dollars by partially paying off the bonds. A similar debt load is why MCI did not buy Rhythms last spring.
Likely losers
Stockholders, and employees with options, will get little or nothing unless the bondholders and other debtors are paid in full.
Goldman Sachs Credit Partners, CIT/NewCourt, CIBC, Credit Suisse and a syndicate have apparently provided $140M of financing, payment of which depends on the offers in bankruptcy court.
Copper Mountain has reserved $8M and Netopia $1M in case they are not paid by NorthPoint. All ordinary creditors, including the landlord, are not guaranteed payment.
Mike Malaga had a vision
Mike Malaga, Pete Castleton, and Jeff Waldhuter inspired this newsletter, convincing us that the fast internet would change everything, and that they could deliver it over ordinary copper wires. (Some articles we've written may have left them with regrets.) He worked tirelessly, once offering to get up at 4:30 a.m. to be on our radio show. For years, progress was slow, because neither the equipment nor the financing was ready. By 1999, the race was on, the IPO money poured in, and by that fall the network build was ahead of schedule. There was a decency about how employees and customers were treated; even folks laid off wished the company well. When the hard times hit, Liz and crew were open and honorable. Nearly all the customers of failing ISPs have been supported without problems, while others continues to struggle.
Verizon still faces $1B lawsuit
Verizon signed a contract in August to buy 55% of NorthPoint for $1.3B, but only paid $200M before it declared NorthPoint in default. Verizon's backing out clearly cost NorthPoint the better part of $1B, which suggests the possible damages if NorthPoint wins. We've analyzed the contract at length, and spoken with the lawyers on both sides. Neither we nor the attorneys we've asked to review it are willing to pick a winner. Verizon has not set aside any reserves, but the potential damages are so great that if they don't get a quick ruling, they have powerful incentive to settle. The lawsuit is one of the key assets of the company going forward, and will be aggressively mounted. For more on the suit, go to
dslprime.com and scroll down to Dec 29. |
