FLAG Flies Into Bankruptcy

FLAG Telecom (Nasdaq: FTHL; London: FTL), a Bermuda-based carriers' carrier, filed for Chapter 11 bankruptcy protection today (see FLAG Files Chapter 11).

Earlier this week, the company's board approved a proposal that would pay its trade creditors and equipment suppliers, either through ordinary business or through venture financing. As usual in restructuring cases, however, FLAG's proposal would mostly likely wipe out the value of the common stock (see FLAG Board OKs Restructuring).

The company's equipment suppliers include Ciena Corp. (Nasdaq: CIEN), whose CoreStream and CoreDirector systems are in FLAG's North Asia Loop, a submarine network spanning Japan, Hong Kong, Taiwan, and Korea. Startup Centerpoint Broadband Technologies Inc. also counted the company among its customers, supplying several FLAG metro networks in North America and Europe with its Celerity CP 3200 (formerly the Zaffire Z3000) DWDM systems (see CenterPoint Raises FLAG). In the past two years, FLAG has bought equipment from Alcatel SA (NYSE: ALA; Paris: CGEP:PA) and Juniper Networks Inc. (Nasdaq: JNPR) as well.

FLAG has assets totaling $3,335,017,000 and debts totaling $2,598,040,000, according to its bankruptcy petition filed in New York.

The filing lists FLAG's top creditors as The Bank of New York, York Capital Management, and Colonial Management Associates. Their claims total $564 million, $48.1 million, and $40 million, respectively.

Verizon Communications Inc. (NYSE: VZ) is FLAG's largest shareholder, holding 18.6 percent of its common stock, the filing states.

Table 1: FLAG Telecom's Largest Shareholders
Holder Kind Percent of Ownership
Verizon Communications Common Stock 18.6
Dallah Albaraka Holding Co. Common Stock 15.5
Tyco International Inc. Common Stock 11.2
TelecomAsia Corporation Public Co. Ltd. Common Stock 10.9
The Asian Infrastructure Fund Common Stock 5.7
Marubeni Corp. Common Stock 5.1
Source: Bankruptcy filings

FLAG's bankruptcy filing puts it in a crowd of carriers looking to clean up their debts and find a way to make a buck on all the overbuilding they'd done in the past few years. So far this year Yipes Communications Inc., Global Crossing Ltd. (NYSE: GX), Metromedia Fiber Network Inc.(MFN) (Nasdaq: MFNX), XO Communications Inc. (OTC: XOXO), and several other carriers have entered Chapter 11. Each filing deals a blow to equipment vendors that were hoping to score some of those carriers' capital spending dollars (see Yipes Joins Chapter 11 Club, Carrier Bankruptcies in Full Bloom, and Distressed Telecom Assets Pile Up).

For its part, FLAG says it will continue to provide core backbone capacity to traditional carriers, ISPs, and other content providers. The company also vows to "to manage its business in a focused manner, conserving capital and reducing costs where appropriate."

FLAG shares were down $0.07 (39%) to $0.12 in early afternoon trading on Friday. A year ago, FLAG shares traded at $4.07.

— Phil Harvey, Senior Editor, Light Reading
vlui 12/4/2012 | 10:37:07 PM
re: FLAG Flies Into Bankruptcy Can someone who's familiar in the Ch.11 process explain, what exactly happens during the Ch.11 restructuring process, and what does it actually take to turn the company around? How does such a carrier get rid of its debt? What happens at that point to their assets (network)?

And suppose some of these Ch.11-ed SPs that we've seen do infact make a come back, what does it really mean in terms of the carrier market, and the financial stability of these SPs?

Maybe LR can help us put the pictures from some of these recent bankruptcy/distress assets articles together?
Sign In