Global Crossing Is Granted Reprieve
Global Crossing got a temporary reprieve from its lenders Friday, averting a potential credit crisis and giving the struggling telecommunications company more time to raise money and appease its anxious bankers.
The company said its bankers agreed to waive certain conditions in its debt agreements until Feb. 13--as long as Global Crossing maintains “certain cash balances.” Executives would not elaborate on the cash balance condition.
The Bermuda-based company, which has executive offices in Beverly Hills, had been racing the clock to renegotiate its loan agreements before the end of the year. Global Crossing had expected to formally violate several conditions of its debt agreements Dec. 31, giving its bankers the right to call in billions of dollars in loans or to take other punitive action.
Calling in the loans would have forced the company into bankruptcy.
Although the arrangement provides only temporary relief from the company’s financial crisis, analysts and investors cheered the announcement.
“It’s good news, and much better than the alternative,” said Kaufman Bros. analyst Vik Grover. “They haven’t won the war, but it’s a good battle to win.”
The deal, announced after the close of trading on the New York Stock Exchange, boosted the company’s stock price, which is down more than 90% this year. Global Crossing shares fell 3 cents to 61 cents on the NYSE in the regular session Friday, but rose to 82 cents in after-hours trading, up 34%. Late traders took the stock as high as 90 cents.
At the end of September, the company had about $2.3 billion in cash, and nearly $11 billion in debt. Since then, Global Crossing has slashed its payroll, closed offices and sharply reduced capital spending.
In addition, the company sold its IPC subsidiary for $360 million in cash. Last week, Global Crossing turned down a loan request from its Asia Global Crossing subsidiary, then suspended preferred stock dividends--a move that will save $184 million a year.
Global Crossing has said it plans to sell its cable installation and maintenance subsidiary, Global Marine, for as much as $800 million. Analysts also speculate that the company might be willing to sell--at a huge discount--its European fiber-optic network, which Global Crossing bought for more than $1 billion in cash.
The company also is talking to unidentified investors about a cash infusion. Wall Street analysts have said the list of potential bidders includes Deutsche Telekom, Hong Kong businessman Li Ka-shing, Singapore Telecommunications Ltd. and Gary Winnick, Global Crossing’s founder and largest shareholder.
Analysts believe Global Crossing may have to do all of those things to stay afloat amid a worsening recession, sinking demand for space on its data network and hefty debt payments.
Pat Comack of Guzman & Co. estimated that the company burned through about $860 million--or about 40% of its cash--in the quarter ending Dec. 31. That spending was offset partially by the IPC sale proceeds, leaving the company with about $1.8 billion in cash at the end of they year, Comack said. The company has sharply curtailed expenses, but it will still face a cash squeeze and needs a new deal with its banks, Comack said.
“I don’t think the banks had any choice but to extend the loan facility and to renegotiate the covenants, because if they push for bankruptcy, they wouldn’t get enough back on the assets,” Comack said. “It’s in their interest to give Global Crossing every chance to succeed and pay back the debt.”
