Winstar Files for Chapter 11, Sues Lucent
New York, Apr 19, 2001 (123Jump via COMTEX) -- Telecommunications services
provider Winstar Communications Inc. (WCII), filed for Chapter 11 bankruptcy
protection Wednesday, to ward off mounting pressure from creditors.
The cash-strapped company also filed a $10 billion lawsuit against Lucent
Technologies (LU), blaming it of breaching its vendor financing agreement. The
company claims that this was what precipitated its bankruptcy petition.
Under the agreement signed in 1998, Lucent gave Winstar $1 billion in vendor
financing, along with access to equipment and supplies. Last year, the companies
amended the financing part of the deal, which allowed Winstar to draw the entire
amount at once, rather than only half the amount at a time.
Having used $700 million of its credit line, however, Lucent denied Winstar's
request for another $90 million, which left the company incapable of meeting the
$75 million in interest payments that was due to bondholders on April 15.
"Lucent's breach of its contract with Winstar has forced the company to seek
protection under the U.S. Bankruptcy Code," said Winstar, . The company however
claimed that its ability to emerge from bankruptcy did not depend on its winning
damages from Lucent.
Lucent spokeswoman Mary Lou Ambrus, dismisses Winstar's allegation. She claims
that it is Winstar that had breached the financial terms of the deal and had
defaulted in its payments. .
"If this bankruptcy occurs, it will be brought about by events unrelated to
Lucent and directly related to market forces and Winstar's internal issues,"
said Ambrus. .
According to David Negri, an investor of fixed income for Oppenheimer Funds in
New York, many lenders have run out of patience with Winstar.
"There has been so much spent on expansion and we have been waiting for the
revenue streams to catch up," Negri said. "It needed additional capital, not
necessarily today, but at least the visibility of access to capital. Winstar and
some others have, in many people's minds run out of financing options."
. Lucent along with close rivals Nortel (NT) and Motorola(MOT) had, during
better days, led a group of large equipment suppliers who had come forward
enthusiastically to help many a telco start-up with funds.
As of December 31, Lucent had committed $5.7 billion to customers for direct
purchases of its equipment and $1.8 billion more to guarantee their bank loans.
But Lucent has its own troubles. "It is the undrawn commitments on Lucent that
are alarming - they do not have the balance sheet capacity to fulfill all the
draws," said Glenn Reynolds, an analyst with CreditSights.com," adding, "Lucent
faces potential risks in its financing deals with Leap Wireless Inc. (LWIN),
TeleCorp PCS (TLCP) and KMC Telecom Holdings Inc.."
Winstar, in filing for reorganization under Chapter 11, said, it has arranged
for $75 million of debtor-in-possession financing with a group of banks to allow
it to run normally as its case unwinds. "The amount could rise to $300 million
if certain conditions are met," the company said. . Winstar hastens to add that
once it starts to repay the debts, Lucent's claim will be entertained only after
the banks' debts were cleared.
However, with capital markets tightening their purses, Winstar is one of the
several telco start-ups facing a severe cash crunch. In the bankruptcy petition
the company said it had about $4.99 billion in outstanding debts with more than
1,000 of creditors at the end of February.
Chief Executive Officer William Rouhana said in a press statement that Winstar,
with more than 30,000 business customers and 5,400 buildings hooked to its
network, expects to emerge from bankruptcy with significantly less debt.
This will help in " dramatically lowering our interest payments and providing us
with more operating flexibility," said Rouhana. Winstar's debt was recently
quoted at two cents a dollar.
"Winstar's operations, in our view, are fairly successful," said Aryeh Bourkoff,
a fixed-income analyst with UBS Warburg. "But the company has been hampered by
an overly-leveraged capital structure and an unhealthy reliance on unfavorable
partners."
Research firm Moody's recently warned that Winstar would find it difficult to
raise additional capital in the public stock or bond markets and that its
current backers were highly unlikely to increase their risks on the company.
According to Wall Street analysts, an acquisition of Winstar is also an
unrealistic option. "Any company interested in Winstar's extensive local network
will wait for bankruptcy proceedings to unfold to acquire its assets," said Ken
Hoexter, a telecoms analyst at Merrill Lynch.
Earlier this month, Winstar, fired 2,000, or 43% of its workforce and said it
would halt network expansion for its U.S. and international networks for the
year to save money.
Nasdaq halted trading in Winstar shares on Wednesday. The troubled telco closed
Tuesday at 14 cents. . The stock has lost more than 99% over the past year.
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