MFN Shields Mystery Buyer

ANAHEIM, Calif. -- OFC 2002 -- Metromedia Fiber Network Inc.(MFN) (Nasdaq: MFNX) is in trouble again. Six months after the carrier was snatched from the jaws of bankruptcy (see MFN Saved at the Bell), the wolf's back at the door. And this time, it may not be satisfied with anything but a full meal of MFN assets. The question is: Who's ready to gobble up this distressed carrier?

MFN outlined its problems in a statement issued late yesterday (see MFN Withdraws Guidance). Specifically, it's missed a $30 million interest payment on about $975 million owed to Verizon Communications Inc. (NYSE: VZ).

Verizon has invested more than $1.6 billion in MFN, sources say, and it's been using MFN capacity to fill out its local network. What's more, a Verizon subsidiary helped bail out MFN during its refinancing adventure last fall.

But now, MFN is blaming the general telecom downturn for its inability to pay Verizon and meet its guidance.

What's to be done? As ever, MFN is playing its cards close to the vest, saying as little as possible. It will say it's trying to renegotiate terms with Verizon and restructure its debt. It's also intent on selling its Paix.net Inc. subsidiary for "$50 million cash and an equity interest in the purchaser" by the start of its second quarter at the end of March.

So who's the buyer? "We haven't disclosed that information," says MFN spokesperson Kara Carbone. And there's nothing filed with the Securities and Exchange Commission (SEC).

But it's not too much of a stretch to imagine that any company sniffing around PAIX.net might also be willing to take on the rest of MFN's assets. Speculation abounds, but determining who's in the running is proving as tough as unmasking MFN's shadowy saviors last time the carrier was in deep doodoo.

Here are three of the juiciest possibilities:

• The Metromedia Gang. For a long time prior to the October bailout, rumors persisted on Wall Street 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. Yesterday's announcement may help raise this spectre again.
  
  
• Cogent Communications Inc. As carriers fall left and right, Cogent somehow remains afloat and acquisitive, thanks in part to hefty infusions of cash from Cisco Systems Inc. (Nasdaq: CSCO). (See Cogent to Buy Allied Riser, Cogent Cops Allied Riser, and Cogent to Buy PSINet).
  
  Cogent already has a deal with PAIX.net (see Cogent Signs a Peer). And at an Optical Society of America executive forum at the Optical Fiber Communication Conference and Exhibit (OFC) yesterday, Cogent CFO Helen Lee noted that the carrier could use some metro fiber capacity, à la MFN. Apparently, Cogent can't offer its in-building services where there's no fiber. "Solving our fiber problem would help us get into more buildings faster," she said. And she reiterated that Cogent's on the lookout for more deals.
  
  Asked last night about the possibility of an MFN or PAIX.net buy, Cogent CEO and founder Dave Schaeffer had this to say: "I can't comment on anything." Hmmmm...
  
  
• Verizon. Despite concerns over its highly leveraged debt structure, experts say this carrier's in better shape than most to partake in consolidation activities. In the latest report from the Optical Oracle, Light Reading's subscription research service, analyst Christopher Bulkey cites Verizon's "strong cash flow and interest coverage metrics," while noting significant downsides. Verizon also depends on MFN and may be unlikely to cede its sizeable investment in its assets to another carrier.
  
  

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com For more information on OFC 2002, please visit: www.nottheofc.com



Editor's Note: Light Reading is not affiliated with Oracle Corporation.