Global Crossing emerges from bankruptcy
Global Crossing exited Chapter 11 Tuesday evening after a two-year struggle of operational restructuring, debt renegotiation, regulatory hurdling and government probes, but with a clean balance sheet, a new board and streamlined operations, the newly emerged Global Crossing said it is now a healthy, viable and still highly competitive company.
"Many thought we didn’t have a chance of getting to this stage," said John Legere, Global Crossing’s CEO. "We started our restructuring back in October of ’01, but we had our plan of reorganization and reinvestment ready by the end of ’02. What we didn’t have a great appreciation for was the regulatory issues we faced. It kept us in bankruptcy longer than we would have liked, but the fact that we were able to manage our cash through a protracted two-year bankruptcy instead of just folding up shows just what a strong company this is."
Global Crossing’s only debt is now $200 million in notes, after starting out $11 billion in the red two years ago. Its financial savior is Singapore Technologies Telemedia, an Asian communications conglomerate, which invested a mere $250 million in the company in exchange for a 61.5% equity stake in the emerged company. At its high point, Global Crossing had a market capitalization of $50 billion. The remaining shares were divided among Global Crossing bondholders and common stockholders received nothing.
Global Crossing, however, brokered that deal last year with ST Telemedia and its partner Hutchison Whampoa, gaining approval from the Federal Bankruptcy Court of the Southern District of New York last December. Regulatory issues and government investigations kept the company hanging in Chapter 11 limbo for the last year. Regulatory concerns over Hutchison Whampoa and its chairman Li Ka-shing’s ties to the Chinese government forced the Hong Kong conglomerate out of the deal, and only recently did U.S. security agencies lift its objections to ST Telemedia controlling Global Crossing. The company was further hobbled by SEC inquiries into the company’s business practices, specifically how it recorded capacity swaps as revenue. The investigations forced Global Crossing to restate its 2001 and 2002 revenues on Monday. No fines, sanctions or indictments resulted from the inquires, but they are still ongoing. While the inquiries haven’t prevented the company from emerging from Chapter 11, Legere said Global Crossing would like to put the issue to rest.
"We do have some questions that haven’t been settled--I won’t deny that," Legere said. "But we definitely want closure."
Its newly restated earnings reveal that Global Crossing wasn’t in the financial straits many thought. Its revenues between 2001 and 2002 dropped from $3 billion to $2.9 billion. And while Legere said the carrier did lose some customers, it managed to gain a few new ones and expand existing agreements even under the shroud of bankruptcy. Global Crossing still serves the international transport needs of about 40% of the Fortune 500, most of which didn’t cut ties with Global Crossing during bankruptcy, though many companies supplemented their capacity with deals with other carriers, Legere said. Since declaring bankruptcy Global Crossing signed 4200 contracts for new or expanded service, valued at $1.2 billion. More than half of those deals were signed in the first half of 2003 after it appeared the company’s emergence was imminent, Legere added.
Operationally the company has cut its operating expenses by 63% from the 2001 levels, and its once monumental capex of $4.1 billion annually fell to just $200 million this year. Legere said while the company hasn’t been building out its network, it has been innovating within it, building voice over IP capabilities into its network architecture.
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