Copyright 2002 The Deal L.L.C.

The Daily Deal…09/17/2002

From Lexis Nexis

Lawyers for Global Crossing Ltd. unveiled Monday, Sept. 16, a reorganization plan that targets an exit from bankruptcy protection for the long-haul carrier by early 2003.

Global Crossing aims for court approval of the reorganization plan by December, clearing the way for an early-2003 exit from Chapter 11. While the company's debt will be substantially reduced, some question whether it will be able to turn a profit in the depressed market for telecommunications capacity.

"There's no reason to believe that this company won't emerge," said one bond analyst who covers Global Crossing. "Having said that, I have less confidence in Global Crossing emerging than Williams Communications or Flag (Telecom Holdings)," the source added, referring to a pair of rival bandwidth suppliers that plan to exit bankruptcy protection in the coming month. "To a certain extent, it's an untenable business. It's too large, and it's too capital intensive."

Global Crossing operates the world's largest fiber-optic network, spanning 100,000 miles from the United States to South America, Europe and Asia. When the company filed for bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of New York in January, it listed $12.4 billion in debts and assets of $22.4 billion, making it the fourth-largest filing in U.S. history.

Since then the company has written down the value of its assets to about $15.4 billion and said that a further review could reduce the figure by another $10 billion.

"My guess is they are going to substantially reduce the products they sell, stick to some of their core products and be a smaller company," another analyst said. In its latest operating report, the company announced that its cash and cash equivalents dropped $106 million to $677 million, raising new concerns about its viability.

"It's never a good thing for a company in bankruptcy to be burning cash," the analyst said. "They do have access to a DIP loan and cash on hand, so they can make it a while longer."

In August, Hutchison Whampoa Ltd. and Singapore Technologies Telemedia Pte agreed to provide $250 million in exit financing in exchange for a 61.5 percent stake in the global carrier when it emerges from court protection. The deal would give Global Crossing's banks and creditors a 38.5 percent equity stake, $300 million in cash and $200 million worth of new senior notes.

Earlier in the year, the company's creditors spurned a $750 million bid from the duo, saying it undervalued the company's assets. But as the market for telecommunications assets continued to deteriorate, so did the size of the bids for the company. Global Crossing postponed the final deadline for offers several times before accepting the lower bid from Hutchison and SingTel.

In addition to the funding the firms are providing, one restructuring adviser said that telecommunications operations will likely provide some traffic for Global Crossing's Pacific lines. But long-term success will likely require deeper changes to the company's business plan.

Because bandwidth prices have fallen so far, companies such as Global Crossing, Williams Communications and Flag Telecom may have to develop new services or software offerings to draw customers, without jeopardizing their newly-restored balance sheets.

"I don't think that fiber routes alone are going to do it," one observer said.