MFN exits bankruptcy as AboveNet

After 15 months in bankruptcy, the network wholesaler formerly known as MFN will emerge from Chapter 11 protection today under its new name, AboveNet.

“We’re changing our name, it’s a fresh start for accounting—it’s almost like we’re a startup again,” said John Gerdelman, the CEO, whose tenure began only a month before the company went bankrupt in May 2002.

AboveNet expects to emerge with about $77.8 million in senior secured debt and end the year with about $80 million in cash and equivalents. The company is “EBITDAR-positive” (EBITDA-positive not including restructuring charges), said Gerdelman. And today it begins paying off those restructuring costs, which he estimates to be between $25 million and $30 million.

Equity in MFN loses all value effective today, Gerdelman said. But AboveNet is offering equity holders the chance to participate in a $50 million “rights offering” (essentially a new funding round), through which XO Communications founder and telecom industry luminary Craig McCaw should end up owning between 15% and 20% of AboveNet, according to Gerdelman.

McCaw will not hold a seat on AboveNet’s board of directors, which will consist of four new members and two holdovers: Gerdelman and Stuart Subotnick, an associate of McCaw’s who introduced McCaw to MFN earlier this year.

AboveNet’s business focus is mostly unchanged from that of its former self. It is comprised of four divisions: network services (primarily dark fiber leasing in 12 major metros), data center services (collocation), IP backbone services and managed services. However, the company launched a gigabit Ethernet service in December and plans to use partners to pursue the storage area networking market in the near future, said Gerdelman, who also serves on the board of directors for storage networking firm McData.

AboveNet is significantly leaner than MFN, with 550 employees instead of the 1000 or so it had at the beginning of 2002. Its fleet of 25 data centers is now down to seven, located in New York; Reston, Va. and San Jose, Calif. (plus one in Seattle it manages for Microsoft but doesn’t own). And its revenues—around $300 million annually when Gerdelman came aboard, he said—are now expected to total $186.7 million for 2003 (including $5.4 million in revenues from PAIX, the collocation subsidiary MFN sold to Switch & Data in March).

Gerdelman said on Friday he would spend this morning celebrating the end of bankruptcy and thanking his employees, but he will spend much of this month traveling to meet face-to-face with AboveNet’s customers.

“It’s been a tough battle,” said Gerdelman. “We’ll celebrate for a day, but then it’s back to work.”