Allied Fiber Caught in Financial Battle
A financial war is raging over the fiber networks of Allied Fiber, which sells dark fiber and colocation services in Florida and Georgia. Acting independently of Allied's management, its senior debt holder has filed for voluntary bankruptcy of its three operating units, setting up a court-supervised sale of its 708 route miles of fiber and colocation facilities.
According to the bankruptcy filing, the company had defaulted on its debt and was showing no signs of being able to generate profits. A published report in TMC, which you can read here, describes the bankruptcy filing of the subsidiaries as the result of a months-long disagreement between Allied Fiber LLC and its senior secured lender, Strome Mezzanine Finance.
An industry observer familiar with the competitive telecom market says Allied Fiber and Strome have been in discussion for months, trying to work out a strategy which would involve the lender's exit from the business. This latest move is apparently Strome's next move in that process.
Allied Fiber LLC executives said they could not comment on the current situation.
The documents filed in the US Bankruptcy Court in Delaware, which were written by former Allied Fiber CFO Scott Drake, claim that Allied Fiber had failed to generate expected revenues from its dark fiber networks and colocation facilities, with only $500,000 in annual recurring revenue on annual operating costs of $8.5 million.
That number seems low, considering recent customer successes that Allied Fiber has reported, including deals with Telefonica and Windstream, among others, but it may not reflect newer business or the colocation segment. The company completed its Miami to Atlanta network in June 2015 and has been more actively marketing since then. While Allied Fiber operated a dark fiber network, it also sold colocation in facilities located about every 60 miles along its route, and CEO Hunter Newby commented at the MetroConnect event in January that colocation was actually a major profit center.
More information may be available at the next hearing on the case, which is scheduled for May 13. The court-supervised sale of the three subsidiaries, AF Southeast and its two units, AF Florida and AF Georgia, could take place within 90 days, following a marketing period. There is not likely to be a lack of bidders, given the booming interest in new fiber networks and the ongoing consolidation in the competitive market of late.
According to the bankruptcy document, Allied Fiber had raised $93 million in funds, including $27 million total from Strome that included recent emergency funding.
The bankruptcy documents state that both Strome and Allied Fiber's original backer, Phoenix Fund LLC, had provided additional funding and agreed to forbearance on the defaulted loans, the filing states. It says that Phoenix terminated its funding on February 29, 2016, and all employees of the company were also terminated without notice.
At that point, the filing states, Strome provided emergency interim funding to allow a core group of seven employees to be rehired to operate the networks and attempted to negotiate an exit strategy.
"These Bankruptcy Proceedings were filed in an attempt to 'stop the bleeding' -- i.e., the monthly burn necessary to keep the Southeast Segment operational while a sale in bankruptcy could be pursued," the filing says.
— Carol Wilson, Editor-at-Large, Light Reading