Cisco-Backed CTC Is Bankrupt

Cisco Systems Inc. (Nasdaq: CSCO) has once again been stung by a carrier to which it provided financing to buy its optical networking and telecom gear.

This time the culprit is Waltham, Mass.-based CTC Communications Inc., a facilities-based CLEC. CTC filed for Chapter 11 bankruptcy protection this week and announced it would fire 300 employees in order to help get its expenses under control.

As of March 25, 2002, CTC employed 705 people, according to the company's Securities and Exchange Commission (SEC) filings.

CTC's bankruptcy filings state that it owes Cisco Systems Capital Corp., the financing arm of Cisco, $57.9 million. The debt is categorized as a "capital lease obligation." The carrier's filings also state that, as of July 31, 2002, it had assets of about $307 million and liabilities of about $394 million.

Carl Redfield, Cisco's senior VP of manufacturing and logistics, has served on CTC's board since January 1999.

In 2001, CTC bought about $38 million worth of equipment from Cisco and, in a recent SEC filing, stated that it intends to buy just as much gear from Cisco in 2002. Cisco also added $25 million to CTC's $225 million senior secured credit facility with Toronto Dominion Bank.

For Cisco, CTC's bankruptcy may be relatively inconsequential when it comes to the earnings statement. However, the bankruptcy extends Cisco's losing streak when it comes to funding the right business plans in the service provider market (see Cisco-Backed Cambrian Is Bankrupt and Cisco's Learning Experience).

— Phil Harvey, Senior Editor, Light Reading
DocGonzo 12/4/2012 | 9:37:37 PM
re: Cisco-Backed CTC Is Bankrupt Are lease obligations forgiven in a bankruptcy filing? Considering that the "typical" lease is secured by the lessor holding title to the equipment being leased, does that not make it different than other unsecured debt? Presumably, the lessor has the opportunity to reclaim the equipment, so it is not a complete loss per se. A Capital lease (as mentioned in the article) may have different ownership characteristics than an operating lease.

Can anyone shed some light on what Cisco's true exposure is wrt being a leaseholder?

BobbyMax 12/4/2012 | 9:37:28 PM
re: Cisco-Backed CTC Is Bankrupt CTC Communications would not have bought from Cisco if it was for financing. This is way of monopolozing customers and sell them equipment at a very high cost. CTC would not be clear its debt throgh the entire life of the company.

The company would not be able to build its network based on interoperability. CTC will end up more equipment at a very high cost and it will be tied to a single vector.
B2Itried 12/4/2012 | 9:37:05 PM
re: Cisco-Backed CTC Is Bankrupt Gee Cisco it seems that you may loose 58 Million in a Chapter 11 filing of one of your Financed deales.

Sounds like TD band, a Canadian Branch financed the deal.

OMG so your losses now will be an impact on Canada, gee why don't you have an American Finance company do it next time.

Hell we don't want our pension funds to fall for your company sweetie.

Well lets see what happens next maybe another carrier will say what the hell and claim file 11 and maybe this time be finance through some americain financier.

deepciscothroat 12/4/2012 | 9:36:10 PM
re: Cisco-Backed CTC Is Bankrupt Dominguqz special
Present from Debbie -- I am not going to jail -- Traficante
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