Global Crossing Halts Dividends

Moving to preserve precious cash, ailing Global Crossing Ltd. on Friday suspended payment of quarterly dividends to its preferred shareholders.

The move, which is expected to save $46 million a year, comes a day after Global Crossing refused to loan $400 million to its Asian affiliate, Asia Global Crossing Ltd.

Analysts said the Asian company has enough cash for now, but its independent board members wanted to tap the credit line because they fear it would disappear if Global Crossing filed for bankruptcy.

The money-saving steps come amid market worries that the ambitious telecommunications company, which is based in Bermuda and has executive offices in Beverly Hills, might follow other upstart firms into insolvency because of its crushing debt load.

Global Crossing, founded by former Drexel Burnham Lambert bond salesman Gary Winnick, has been losing money steadily and had nearly $11 billion in debt and $2.3 billion in cash at the end of September. The company operates a worldwide fiber-optic network and sells telecommunications and data lines to major corporations and phone companies.

Global Crossing is majority owner of Asia Global Crossing, which operates the parts of the network that serve many Asian countries. Microsoft Corp. and investment firm Softbank Corp. of Japan also are shareholders.

Late Thursday, Global Crossing announced that it rejected a request from Asia Global Crossing to draw down the entire $400-million credit line set up by Global Crossing a year ago.

In announcing its decision, Global Crossing said it is “not prepared at this time” to make the loan. A statement from Asia Global Crossing said the requested funding “was not provided within the time set forth in the line of credit agreement,” and that the two companies were still negotiating.

“They can’t afford to lend their subsidiary $400 million ... they need as much cash as possible,” said Pat Comack, an analyst with Guzman & Co. “It highlights their precarious position.”

To improve its balance sheet, Global Crossing has laid off thousands of employees, closed offices, slashed spending and raised $360 million though the sale of its IPC Trading Systems unit.

Global Crossing also has announced the planned sale of its Global Marine network maintenance and construction unit, which analysts say could fetch several hundred million dollars.

The suspension of dividend payments allows the company to defer those cash payments. The dividends will continue to accrue, but will not earn interest, the company said.

Despite those moves, Global Crossing has said it has--or will soon--violate the terms of its loan agreements. The company has said it is negotiating with its lenders to get relief from certain requirements.

Vik Grover, an analyst at Kaufman Bros., said the company’s debtors wouldn’t gain much by forcing Global Crossing into bankruptcy.

“Their creditors are unsecured, which means they don’t have a lot of bargaining power,” Grover said. “I think the story is far from over.”

He added that Global Crossing could still renegotiate its loans and pick up an equity investment from Hong Kong businessman Li Ka-shing, Deutsche Telekom or Singapore Telecommunications Ltd. --all of whom are said to be talking to Global Crossing.

The company has refused to comment.

“There’s a lot of speculation out there, and we don’t comment on that,” said Global Crossing spokesman Dan Coulter. “If we have something material to announce, then we’ll announce it to everybody.”

Global Crossing shares fell 10 cents, or more than 13%, to close at 65 cents on the New York Stock Exchange. Asia Global Crossing shares fell 8 cents to close at $1.11, also on the NYSE.