MFN Countdown Continues
MFN says the new commitment letter expires on September 17, 2001, and is contingent on the successful completion of due diligence, the creation of an official contract, and the closing of other aspects of MFN’s complicated $615 million financing plan.
Yesterday, MFN was counting the hours till midnight September 4, as it neared the deadline for completion of its financing package. It already had gotten a key element in place -- the approval of its bond holders to change the terms of their contract with the company, allowing MFN to obtain vendor financing in order to continue its operations (see MFN Gets Debtor Consents).
The details of MFN’s plan seem Byzantine. But for those without advanced degrees in accounting and business law, they include the following key elements: $235 million in vendor financing from undisclosed sources; $150 million in credit from several banks, led by Citicorp USA; and $230 million from a series of what the company is calling "affiliates."
All of the pieces in MFN's plan are dependent on the completion of the others in order to come to fruition. Specifically, the $235 million is contingent on the reception of the $150 million, which requires the receipt of the $230 million. Got that?
The upshot is that the $230 million input from the so-called affiliates appears to be the linchpin in the arrangement. And as of yesterday night, MFN had received $180 million of it. That meant the carrier still needed $50 million by midnight last night in order to close the deal as it stood.
Now, it looks like an angel stepped into the breach with a tentative commitment for the needed $50 million. But who is the mystery investor? And who are the other affiliates?
MFN isn’t saying. "We haven't defined affiliates," says an MFN spokesperson. They could be shareholders, partners, or other entities. At least one analyst thinks they're key stakeholders from Metromedia International Group Inc., the company that originally helped launch MFN.
"There's no indication from the company that they're the affiliates, but I think they're probably involved," says analyst Vik Grover of Kaufman Bros. LP. Grover also thinks the vendors helping to finance MFN are led by Nortel Networks Corp. (NYSE/Toronto: NT). Nortel couldn't be reached for comment at press time.
Grover isn’t alone in thinking that MFN has its old sponsors behind it again. Rumors have persisted for weeks on Wall Street that MFN board members and shareholders John Kluge and Stuart Subotnick, who also head up Metromedia International Group’s holding company, plan to take MFN private again.
MFN isn’t addressing any of this, and it’s staying cryptic on the details of last night’s investor. But one thing is clear: MFN seems to be on track for its financing round -- at least until midnight tonight, the deadline for the other elements of MFN’s financing arrangement.
MFN needs an infusion of cash in order to complete its network buildout. The carrier plans 67 metropolitan area networks, of which 29 are operational today. The rest are in various stages of design and construction, the company says.
Like so many companies, MFN has seen its fortunes wane during the recent downturn, as reflected in its latest quarterly report (see MFN Reports Q2 Revenue Growth). The firm also announced in June 2001 that it will have to let go roughly 20 percent of its workforce, about 400 employees, in a layoff that's still unfolding.
Kaufman’s Grover thinks it’s unlikely MFN will be left without its needed infusion.. "You have to put things into perspective. Here's a company that two months ago had nothing and already has $565 million lined up. I mean, anything can happen, but it seems likely they'll get the money from somewhere."
Grover says MFN is in a different position than many alternative service providers. It's public, it's strongly backed, and its customer list includes the likes of SBC Communications Inc. (NYSE: SBC) and Verizon Communications Inc. (NYSE: VZ). With companies like these waiting in the wings, it's not likely that MFN won't get its money, he says.
Some investors remained optimistic that MFN will prevail, although its shares are still below the $1 range. Today, shares were trading up 0.07 (7.95%) at $0.95.- Mary Jander, Senior Editor, Light Reading