MFN Saved at the Bell
The news, which was released in the middle of Wall Street's trading day, prompted a collective sigh of relief from the Street -- and resulted in a prompt doubling of the stock, which traded up 0.33 to 0.66 in late afternoon trading. "This round's over, and MFN won," says Vik Grover of Kaufman Bros. LP.
Details of the financing roughly match terms of the carrier's original plan (see MFN Countdown Continues ): There is still $150 million in a note facility from several banks, led by Citicorp USA. Another $230 million in convertible debt financing is coming from a range of still-mysterious sources. Vendor financing (also from undisclosed sources) has slipped a wee bit from the originally proposed $235 million to $231 million. But MFN says it's renegotiated terms with several of its other vendors in order to gain more time.
Who are the saviors? MFN did not return calls at press time, but it appears there are more folks holding the net than there were a month ago. The mysterious "affiliates" named as contributors in the $230 million debt financing are still there, for instance. But their contribution is now $180 million. Another $50 million is coming from a subsidiary of Verizon Communications Inc. (NYSE: VZ).
This is no surprise, analysts say. "I've said for months that Verizon wouldn't let MFN go under," Grover maintains [ed.note: before credit is granted, we note that Grover has held his "Strong Buy" on the stock since at least January, when he issued a price target of $78 with the stock trading at $17]. Verizon's invested about $1.6 billion in MFN, Grover says, and it is using the carrier's local fiber to fill out the Verizon network.
For some observers, the announcement squelches rumors that MFN's so-called affiliates might be making a power play. Early talk about the financing package was met with persistent Wall Street rumors that MFN board members and shareholders John Kluge and Stuart Subotnick, who also head up Metromedia International Group’s holding company, planned to take MFN private again. Now, that threat appears to have passed.
MFN's management changes and guidance indicate it's looking squarely at its future as a public carrier. Stephen Garofalo will continue as chairman of MFN's board but has been replaced as CEO by Nick Tanzi, formerly president and COO. Taking Tanzi's place as COO/president is Mark Spagnolo, ex-president and CEO of Sitesmith, the Internet service design and management company MFN bought for roughly $1.36 billion this time last year (see MFN to Acquire SiteSmith). Spagnolo, former CEO of UUNet, brings the company much-needed operational experience.
MFN is also optimistic about its ability to move ahead. Its new revenue guidance for the present third quarter ($91 to $93 million in revenues) is about 17 percent lower than it originally planned. And its guidance for the fourth quarter 2001 is now $100 to $103 million in revenues, about 23 percent lower. But MFN now expects EBITDA (earnings before interest, taxes, depreciation, and amortization), a generally accepted measure of liquidity, to rise to positive levels by early 2002 -- one year ahead of its original guidance.
— Mary Jander, Senior Editor, Light Reading