The market responded favorably to the news on Monday, though Global Crossing is in no way out of the woods yet. Its shares finished the day up $0.23 (38%) to $0.84 in afternoon trading. The company's stock has lost about 94 percent of its value this year.
Global Crossing said Friday that if the banks had not given it a waiver, it would have violated several conditions of its debt agreements with lenders on December 31. Those violations would have meant that the banks could have called for immediate repayment, which would have forced Global Crossing into bankruptcy.
It's not a surprise that the banks are working with Global Crossing, because forcing the company into bankruptcy and a sale of its assets would not likely garner as much money as a turnaournd. Global Crossing had about $2.26 billion in cash and equivalents as of the period ending September 30, but the company was also carrying $7.6 billion in long-term debt. During that quarter, the company also reported a net loss of $3.3 billion.
With the borrowed time from its bankers, Global Crossing can continue trying to round up new investment dollars – either from strategic investors such as customers or other banks. "We expect to continue discussions with our bank lenders about the terms of our bank credit agreement as we pursue discussions with potential equity investors," said Global Crossing CEO John Legere, in a statement issued by the company last week.
This, the first public admission that Global Crossing is seeking outside investors, helped boost the stock Monday, but it could also be seen as a further sign of the company's weakness. "They're indicating to the market that they can't do it alone," says Pat Comack, a telecom analyst at Guzman & Co.
That Global Crossing is in such deep trouble has sent a shudder through the telecom world. The company's massive network links 27 countries and more than 200 major cities in Europe, North America, South America, and Asia. Its customers include huge financial exchanges, such as the New York Stock Exchange; trading floors, such as Merrill Lynch & Co. Inc. and J.P. Morgan & Co.; and telecommunications providers such as Deutsche Telekom AG (NYSE: DT). There's no telling what would happen if the company's financial problems forced it to go dark.
Also troubling is that Global Crossing won't say which investors it's talking to, nor has it made any public comment as to what other ways it might try to raise the needed funds. The company also won't give details as to what cash balances its creditors are requiring it to maintain for the next few weeks under the granted waiver.
So how will Global Crossing raise some quick cash? Several analysts – among them Vik Grover at Kaufman Bros. LP – have suggested a few solutions, including:
- Selling non-core assets, including the company’s undersea systems integration business, Global Marine Systems. (Last quarter, the company wrote down some $545 of goodwill related to what it expects to lose when it sells the Global Marine Systems business. Also, rumors have surfaced that the company recently tried – and failed – to unload its Racal Telecom assets to one buyer at a 50% percent discount. Global Crossing bought Racal in 1999 for about $1.6 billion in cash.)
- More layoffs. (The company has already cut 3,200 jobs in 2001.)
- Cut capital spending. Again. (Global Crossing expects to spend $1 billion to $1.25 billion in 2002. The company spent $1.04 billion in Q3 2001 alone, more than it will spend all of next year.)
- Revisit a combination with the company’s Asian unit, Asia Global Crossing Ltd. (NYSE: AX), to eliminate redundancies.
At this point, Global Crossing is going to have to make some hard choices as it continues to race the clock. "If they don't pull off significant [network capacity] sales and execute some asset sales, I don't know if they'll make it through 2002," says Guzman's Comack.
— Phil Harvey, Senior Editor, Light Reading