Global Eased Loan Terms
Global Crossing Ltd. eliminated or substantially reduced the terms of $18 million worth of personal loans the company made to two of its top executives in the months before the telecommunications company filed for bankruptcy protection, regulatory filings show.
In October, the company agreed to erase the $10-million balance of a $15-million loan made to Chief Executive John Legere. And in August, Global Crossing significantly eased the terms of an $8-million loan made to former CEO Thomas Casey. If Casey remains with Global Crossing, the entire loan will be forgiven, according to a regulatory filing.
Many large firms make--and then forgive--loans to high-level executives. But they have been criticized as excessive and unnecessary by compensation experts.
In addition, the size of the Global Crossing loans and the timing of their erasure are not likely to sit well with the bankers, creditors and shareholders who collectively stand to lose billions of dollars because of Global Crossing’s bankruptcy, experts said.
“I consider it really appalling,” said Nell Minnow, editor of the Corporate Library, which tracks compensation trends. “I would say [Global Crossing] is in the top 20% of outrageousness.”
Bermuda-based Global Crossing, whose executive offices are in Beverly Hills, did not disclose the purpose of the loans and declined to answer questions about them Wednesday.
Legere was granted a $15-million loan by Global Crossing’s affiliate, Asia Global Crossing, when he joined that company as chief executive in February 2000. The loan was intended to be forgiven from the outset but over three years in increments of $5 million.
When Legere moved to Global Crossing, $10 million of the loan remained, with the next $5 million deduction set for October of this year. Instead, the firm erased the balance and noted that in regulatory paperwork filed in December.
In addition, Legere received a $3.5-million bonus and a $1.1-million annual salary for jumping to Global Crossing. Global owns 59% of Asia Global Crossing.
Casey was lured to Global Crossing from an executive job at Merrill Lynch & Co. in November 2000 with a lucrative compensation package. It included an $8-million loan that was secured by Casey’s home and carried an interest rate of 6.01%--several percentage points below market rates.
But in August, Global Crossing gave Casey back the deed to his house, reduced the interest rate to zero and pledged to forgive the entire amount in yearly increments of $2.6 million as long as he remained employed by the company or an affiliate. Two months later, he was ousted as CEO and named vice chairman and a director. Casey has since left the company, and the status of his loan is unclear.
Minnow, the compensation expert, said large loans to executives are growing more common, and that corporations frequently add a provision to “gross up” the payment amount to cover any taxes.
“I call that the Leona Helmsley provision, because what that means is that only the little people pay taxes,” Minnow said.
Global Crossing has been singled out before for awarding its executives excessive pay and perks.
Former CEO Robert Annunziata worked for Global Crossing for 13 months. He received a $10-million cash bonus, a guaranteed annual bonus of $500,000, a $5-million loan to buy company stock, and options to buy 2 million shares of Global Crossing at $10 below market prices. His contract also included a Mercedes and monthly first-class trips to shuttle his family--including his mother--between his Los Angeles and New Jersey homes.
Global Crossing has come under fire in recent days for a series of moves preceding its Jan. 28 bankruptcy filing, the fifth-largest in U.S. history, with assets of $22.4 billion.
Company executives did not disclose to either its outside auditor, Andersen, or to its board a letter from a former finance vice president warning that Global Crossing’s accounting methods were misleading because they had the effect of inflating revenue.
The letter has attracted the interest of the Securities and Exchange Commission, and Bloomberg News reported Wednesday that the FBI also is looking into the matter.
The bankruptcy also has put the spotlight on company executives who sold $1.3 billion worth of Global Crossing stock over the last three years.
Global’s stock, once part of the S&P; 500 index, now trades over the counter. It closed Wednesday at 8 cents, down 2 cents.
