360networks Inc, which is building a communications network linking cities such as Toronto and Los Angeles, won't make a US$10.9 million interest payment due on Friday. The company likely will seek bankruptcy protection, analysts said.
The company, with US$2.49 billion in long-term debt on March 31, said it has 30 days before defaulting on the 12.5 percent senior notes. It hired Lazard Freres & Co to consider options, including restructuring, according to a statement. A US$30 million interest payment is due Aug. 1, spokeswoman Michelle Gagne said.
Chief Executive Gregory Maffei, the 41-year-old former chief financial officer at Microsoft Corp, had told investors he could finance the US$7 billion network by selling fast data transmission to companies, including phone-service providers. Vancouver-based 360networks and rivals such as Level 3 Communications Inc are facing competition and lower prices for services.
"They thought that demand was going to be much stronger than it turned out to be," said Sean Egan of Egan-Jones Ratings Co. The agency cut 360networks' debt rating to "D," the lowest possible, which applies when companies "have or are extremely likely to default."
"They'll likely seek bankruptcy protection," he said. Gagne declined to comment.
Moody's Investors Service cut its credit rating on 360networks to "Ca" from "Caa3," a notch above the lowest level. Standard & Poor's Corp downgraded 360networks's credit eight notches to ``D,'' also the lowest, from "B+." 360networks last month said it expects sales of US$550 million to US$600 million this year, down from earlier estimates of US$650 million to US$750 million. The company also trimmed capital spending plans for 2001 to between US$2.2 billion and US$2.4 billion, from US$3.5 billion to US$4.5 billion, and halted construction of its South Asian network and trans-Pacific cable.
360networks, which began operations in May 1998, would join Winstar Communications Inc. and NorthPoint Communications Group Inc. in seeking bankruptcy after running out of money before completing network construction.
Shares of 360network fell 13 cents to 30 cents and have plunged 98 percent in the past year. The 13 percent senior notes due in 2008 were quoted at about 2 cents on the dollar, traders said. They've fallen as much as 88 percent since April, they said.
"The overriding issue facing the company was its need for cash," said David Glaymon, an analyst at JP Morgan Securities Inc, who has a "market perform" rating on the company.
"It is clear the company has not been able to raise the amount needed."
RSS