In the race to build next-generation telecommunications networks, ICG had more yearnings than it did earnings.

Earlier this week, the embattled CLEC ICG Communications Inc. (Nasdaq/Neuer Markt: ICGX) announced it couldn’t pay its debts, so it filed for Chapter 11 protection with a U.S. Bankruptcy Court in Delaware.

As of September 30, ICG had total assets of $2.79 billion and total debts of $2.81 billion, according to a Dow Jones Newswire report citing bankruptcy documents.

ICG is doing its best to put a good face on the debacle. “This is a strategic step taken by the company as part of its ongoing efforts to restructure and ultimately strengthen the company’s balance sheet,” said Randall E. Curran, ICG’s CEO, in a prepared statement.

In this case, ICG’s “strategic step” is to continue doing business as it works with creditors to find out how it will pay all the different banks, equipment vendors, and other carriers it owes.

The keep itself afloat, ICG has secured up to $350 million in financing from Chase Manhattan Bank, of which $200 million is available immediately. ICG also has about $160 million in cash.

“We’re trying to make this as seamless and transparent to customers and employees as possible,” an ICG spokesperson says. “Our desire is to work as we have been -- it’s business as usual.”

The problem is that "business as usual" for ICG has come to mean network outages, disappointed customers, topsy-turvy managers, and sliding revenues (see ICG's Sinking Ship). Now those problems are coming back to bite ICG’s creditors and equipment vendors.

The company’s largest trade creditors are Qwest Communications International Corp. (NYSE:Q), with a $61.2 million claim, and Lucent Technologies Inc. (NYSE: LU), with a $42.1 million claim, according to a Dow Jones Newswire report.

More granular data will be served up next week as ICG files more paperwork with the Securities and Exchange Commission. Until then, though, it’s worth noting that ICG’s plight has given the practice of vendor financing a black eye.

Indeed, ICG is a “Cisco-Powered Network,” a designation it earned by committing to install gear made by Cisco Systems Inc. (Nasdaq: CSCO) in a designated part of its infrastructure. ICG had two vendor financing agreements with Cisco totaling $180 million with a three-year repayment term. As of June 30, ICG had drawn $99.1 million of the $180 million available from Cisco.

Now there’s no telling when or if ICG will be able to pay Cisco or its other creditors back. But since ICG’s seeking Chapter 11 protection, it doesn’t have to worry about liquidating assets or having Cisco take back its gear.

According to SEC documents, ICG’s network consists of 24 ATM switches, 18,000 miles of leased long-haul fiber optic lines, 43 voice switches, 4,767 miles of local fiber, and connections to 9,152 buildings.

In an unrelated conversation, commenting generally on vendor financing, Juniper Networks Inc. (Nasdaq: JNPR) CEO Scott Kriens articulated what some vendors may be thinking in the wake of meltdowns at firms such as ICG: “Buying routers from banks is a bad idea, and buying money from networking companies is a bad idea."

-- Phil Harvey, senior editor, Light Reading http://www.lightreading.com