Unfortunately I have to say that the telecom news in the sector will continue to get worse with more and more bankruptcies. And unfortunately I don't think the industry can begin to recover till those bankruptcies run their course. IMO, Lucent is one of the best positioned to ride out the storm and come out stronger than ever. That $1.75 convertible insurance we are going to look back and see that it was one of the many smart things that this new management has done in the past 12 months in the face of extreme deteriorating macro conditions in the telecom sector.
Having said all that, I think we are bound to be judged by the same color as the whole industry going forward even though IMO we will continue to outperform it. Cause there is no way a company with a $3.7 billion/quarter should be valued the same with a company with $3 billion in revenues. So I think we'll slowly see the gap increasing between Nortel and Lucent to about 20-25%. However news like these (see below) will continue to affect the whole sector and cap any growth to it till telecom capital expenditures start rising again.
JMHO.
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Metromedia Fiber Says It May File for Bankruptcy (Update10)
By Jonathan Make
White Plains, New York, March 18 (Bloomberg) -- Metromedia Fiber Network Inc., the data-network owner controlled by billionaire John Kluge, may file for bankruptcy after missing a $30 million interest payment to Verizon Communications Inc.
The payment to Verizon, which said it owns 6.6 percent of Metromedia, was due Friday on $975 million of subordinated convertible notes, Metromedia said. The company is trying to restructure its debt, which totaled $3.3 billion as of Feb. 28.
Metromedia also said it is selling assets and withdrawing sales forecasts after businesses cut spending on data services. The stock has plunged to less than $1 from a high of $51.88 in March 2000 amid a network-capacity glut. After getting $611 million in October to avert a bankruptcy filing, Metromedia may join rivals such as Global Crossing Ltd. in Chapter 11.
``There was excess capacity, and pricing coming down as a result,'' said Kenneth A. Smith, a money manager at Munder Capital Management, which owned 186,521 Metromedia shares and managed $35 billion at year's end. ``That's the problem that Metromedia is facing.''
The White Plains, New York-based company leases space on its fiber-optic network to let businesses send data at high speeds within cities. Customers include Microsoft Corp. and Sony Corp.
Prices for some network operators' capacity has fallen by more than half in the last two years, according to researcher TeleGeography, Inc. Global Crossing, McLeodUSA Inc. and PSINet Inc. are among dozens of telecommunications companies that filed for bankruptcy in the past year as demand slumped.
Sales
In January, Metromedia forecast 2002 sales would rise to as much as $535 million from as much as $363 million in 2001. Sales more than doubled in 2000 and 1999.
The company's third-quarter loss more than doubled to $242.1 million on network-building costs. It hasn't released results for the fourth quarter or 2001.
Shares of Metromedia fell 18 cents to 9 cents. The stock was the most active in U.S. trading. Shares of New York-based Verizon fell 8 cents to $47.62.
Metromedia bonds traded at 11 cents on the dollar, said Jerry Paul, a managing partner at Quixote Capital Management LLC. The price was 87 cents on the dollar a year ago, according to Merrill Lynch. Moody's Investors Service cut its rating on the company's senior long-term debt two notches to ``Ca,'' the second-lowest grade, from ``Caa2.''
``The downgrade reflects our expectation that a restructuring or possible bankruptcy will result in poor recovery prospects to debt holders,'' Moody's said. The change affects $1.6 billion in debt securities, the firm said.
`Sour Taste'
Metromedia, which had $37.3 million in cash and equivalents as of Feb. 28, received financing from Citigroup Inc. and other sources, including vendors, in October.
``This leaves a real sour taste in my mouth after the drama that unfolded last year,'' said Kaufman Bros. analyst Vik Grover, who cut his rating on Metromedia to ``hold'' from ``buy'' and doesn't own the shares. ``It's just one more disaster in the sector.''
Grover said Metromedia likely will issue equity to debt holders in a restructuring while shareholders will get nothing.
``We're looking at all possibilities for our restructuring,'' Metromedia spokeswoman Kara Carbone said. She declined further comment.
Verizon spokesman Bob Varettoni said the company is talking with Metromedia, and declined to comment further.
Asset Sale
Metromedia also said it agreed to sell some buildings in Palo Alto, California, to an unidentified buyer for $50 million. There is no guarantee that the transaction, scheduled to occur by June 30, will be completed, the company said.
Metromedia in 1999 sold a $1.68 billion stake to Bell Atlantic Corp., which has since been renamed Verizon, Carbone said. Including Verizon's holdings of convertible shares, it has a 17 percent stake in the company, Metromedia said. Verizon said it has a 6.6 percent holding excluding convertible securities.
Nortel Networks Corp. last year agreed to provide $231 million in financing to Metromedia in exchange for cash and a warrant to purchase about 85 million shares, according to a filing with the U.S. Securities and Exchange Commission by Metromedia.
Nortel spokeswoman Tina Warren said in a statement the phone- equipment maker has ``no material exposure'' to Metromedia and that it doesn't own any of the common shares.
Kluge controlled 56 percent of Metromedia's voting shares as of Oct. 11, according to an SEC filing. He was ranked 24th on Forbes magazine's 2001 list of the world's wealthiest people.
He also owns 19 percent of Metromedia International Group Inc., which owns assets ranging from cable-TV systems to Snapper, a maker of lawn tools. Kluge resigned this month as chairman of East Rutherford, New Jersey-based Metromedia International. |
