MFN Falls Into Chapter 11
The filing should come as no surprise. The telecom company, which mostly builds high-speed fiber optic metro networks, warned back in March that it might have to file for bankruptcy, and its stock has been trading for less than a quarter per share since then (see MFN Withdraws Guidance). When the company’s stock last traded on Friday, it was at a nickel a share. On Saturday, Nasdaq announced that it had halted trading on MFN stock (see Nasdaq Stops Trading in MFN)
“This is not surprising, because their financial situation was tenuous,” says RBC Capital Markets analyst David Bank. “But most failures have been on long haul. Local fiber is supposed to be the most valuable asset there is, so for them to have failed is disappointing.”
Global Crossing Ltd. (NYSE: GX), Williams Communications Group Inc., McLeodUSA Inc. (Nasdaq: MCLD), FLAG Telecom (Nasdaq: FTHL; LSE: FTL), and Yipes Communications Inc., are among the bankrupt telecoms, while Qwest Communications International Inc. (NYSE: Q) and Level 3 Communications Inc. (Nasdaq: LVLT) are struggling to avoid default on their credit agreements (see Carrier Bankruptcies in Full Bloom).
Since the March warning, MFN has missed several interest payments, the last of which it announced last Wednesday, when it reported that it had not paid the approximately $32 million in interest on its $650 million 10 percent senior notes, due that day (see MFN Delays Report (Again)). It has also changed CEOs and continued to delay reporting its annual results for 2001, as well as its quarterly results for the quarter ended on March 31. Recently it also lost contracts with both Genuity Inc. (Nasdaq: GENU) and Verizon Communications Inc. (NYSE: VZ) (see MFN Defaults Mount).
Verizon also announced last month that it had written down its entire 6.6 percent stake in the company. A company spokesperson said today that due to the write-down, the MFN bankruptcy filing would not hurt Verizon further.
MFN stated today that it had hired Impala Partners LLC and UBS Warburg to assist it through the restructuring process. To cut costs, the company said that it would get rid of idle data centers or non-essential offices, reject burdensome vendor contracts, and cut jobs.
Metromedia Fiber Network Government Services Inc. was not among the MFN subsidiaries included in today’s filing.
“We believe that this is the best course to ensure our long-term stability,” Kara Carbone, a spokesperson for MFN said this morning, blaming the company’s woes on the cash crunch that followed the downturn in the economy.
The company insists that the bankruptcy filing will not affect customer service, since it had reached an agreement with its senior secured lenders that would allow it to fund operations while it goes through the restructuring.
“Customer service is still our main priority,” Carbone said. “We hope [the support from our customers] will continue.”
— Eugénie Larson, Reporter, Light Reading