A day after it defaulted on senior debt, fended off talk of a $600 million debt to Lucent, and considered bankruptcy, Winstar Communications Inc. filed a $10 billion lawsuit against Lucent Technologies for breach of contract. It also filed for bankruptcy.
The lawsuit, filed in U.S. Bankruptcy Court for the District of Delaware, alleges Lucent breached its strategic partnership agreement with Winstar. With the damages, Winstar seeks an injunction requiring Lucent to follow through on the contract, including the payment of more than $90 million it says Lucent failed to pay on March 30.
In a statement, Winstar alleges "Lucent breached its agreement with Winstar and injured Winstar's ability to complete its broadband network. Lucent's breach of its contract with Winstar has forced the company to seek protection under the U.S. Bankruptcy Code."
Winstar spokesman Peter Duda told CEDaily Lucent was on record as breaching the contract. "On March 30, when they breached, we were in full compliance with all provisions."
Earlier this month, Winstar announced it would stop expansion of its network and lay off 2,000 people, something Duda said was "directly connected with (Lucent's) breach."
The lawsuit is "absolutely frivolous and without merit," Lucent spokesman Bill Price told CEDaily. Lucent didn't breach the contract. "(Winstar is) in breach of financial covenants with us," he counters. Lucent only extends financing when a company can meet the terms, he says. "That wasn't the case here."
He calls allegations that Lucent forced the company into bankruptcy "ludicrous."
Price says Lucent will seek what's owed to it through bankruptcy court.
Still, Winstar stresses its ability to emerge from the bankruptcy "as a successful operating entity is not contingent on the receipt of any damage award in this lawsuit," it said in a statement. Damages are slated for share- and bondholders.
Under the Chapter 11 bankruptcy, filed in the U.S. Bankruptcy Court for the District of Delaware, Winstar says it will continue to provide service to its 30,000 business customers and maximize the value of its "extensive broadband network" and services. The bankruptcy won't affect day-to-day operations, it says. Winstar says it's arranged for an initial $75 million in DIP financing from a bank consortium, which under certain conditions could reach $300 million.
Winstar's focus now is starting the Chapter 11 process, Duda says.