Global Crossing Files Plan to Restructure
Global Crossing Ltd. filed a reorganization plan Monday that predicts that the telecommunications firm could emerge from bankruptcy in January and rebound to post a profit in 2003.
The company’s projections, although speculative, are included in the reorganization plan’s companion disclosure statement, a detailed document that outlines the past and present as well as future prospects for the firm, litigation and other contingencies.
Global Crossing’s disclosure statement also suggests that Chief Executive John Legere, Chief Financial Officer Dan Cohrs, Executive Vice President of Finance Joe Perrone and other company executives would be protected from personal liability as part of the reorganization plan. That protection would not include former officers such as Gary Winnick, a founder of the company and its longtime chairman.
Protection from liability could be a significant factor because Global Crossing is the subject of accounting and disclosure investigations by the Securities and Exchange Commission and the U.S. attorney’s office in Los Angeles.
The Labor Department is looking into the company’s employee stock policies. And Global Crossing has been served with subpoenas from New York state Atty. Gen. Eliot Spitzer and two congressional panels investigating the relationships among securities firms, analysts and their banking clients.
Bermuda-based Global Crossing also faces nearly 50 class-action lawsuits alleging securities law violations and an estimated 15 class-action lawsuits concerning federal retirement plan protections.
Winnick is considered a key target of many of the investigations because he has been the firm’s driving force since its founding in 1997 and because he sold shares worth hundreds of millions of dollars before the stock collapsed. Its stock is trading at 2 cents, down from a 1999 high of $64.25.
Winnick is set to testify next week before the House Energy and Commerce Committee.
Global Crossing plans to sell a majority stake in the firm to Hutchison Whampoa Ltd. of Hong Kong and Singapore Technologies Telemedia to fund its revival. Under an agreement reached in August, the two Asian companies would pay $250 million for a 61.5% share of post-bankruptcy Global Crossing.
Under the reorganization plan, the firm’s banks would get $300 million in cash, plus $175 million in new debt securities and a 6% stake in the resurrected company. Other creditors would get $25 million in new debt and 32.5% ownership in the new Global Crossing.
Holders of common and preferred shares would get nothing.
The deal values Global Crossing at about $407 million, a pittance considering that the company spent billions to build a fiber-optic network connecting more than 200 cities in 27 countries.
The plan will be presented Oct. 21 to U.S. Bankruptcy Judge Robert Gerber for approval.
Ivan Kallich, head of the bankruptcy group at Manatt Phelps & Phillips in Los Angeles, said the filing of a company’s reorganization plan is “a pretty significant benchmark in the case, because it will begin the process of negotiating how the company will dispose of assets and how much it will pay its creditors.”
In cases such as Global Crossing’s, there also may be skirmishes over payments made by the company in the year leading up to its bankruptcy filing.
Under bankruptcy law, creditors can challenge payments to insiders as well as to creditors in some cases.
“Outrageous bonuses and those kinds of things will most likely come back” to creditors, Kallich said. “Theses things need to pass the smell test.... If something seems out of the ordinary, they’re going to go after that.”
Kallich also said it’s not unusual for reorganization plans to include provisions to protect current officers from litigation. “One tries to do it, but it’s usually very difficult to fully insulate all of these folks.”
In today’s environment, litigation is almost guaranteed, Kallich said.
“There’s been so much out-and-out greed, you’ve got the plaintiffs’ bar gunning for the former officers and directors of these companies,” Kallich said.
“Since Winnick is still extremely well off, he’s a prime target, and I don’t think the creditors will approve a plan with a protective provision for him.”
In an unaudited projected statement of operations, Global Crossing said it expects to post a net profit of $174 million and book total revenue of $3 billion in service and network capacity sales for 2003. The company projects rising revenue and profit in subsequent years.
Global Crossing filed for bankruptcy protection Jan. 28. The company listed $12.4 billion in total debt and assets of $22.4 billion--a figure that had shrunk to $18.4 billion by July 31 and probably will fall to $1.7 billion when the company finishes writing off assets and emerges from bankruptcy.
