GLOBAL CROSSING'S CREDITORS ENCOURAGED BY TURNAROUND

Global Crossing's creditor committee discontinued investment talks with Hutchison Whampoa and Singapore Technologies Telemedia last week because of its increased faith in the company's operational abilities, either as a stand-alone entity or as part of a larger concern.

When Global Crossing announced its bankruptcy filing in late January, it also trumpeted a letter of intent under which Whampoa and STT would invest a combined $750 million in the carrier in exchange for controlling interest. That deal was never finalized, however.

According to John Legere, CEO of Global Crossing, the company's operational turnaround coincided with his appointment in October 2001.

Global Crossing has cut its cash burn rate to $6 million per month in April, giving it $913 million in the bank at the end of the month, he said.

“There's virtually no cash burn,” Legere said in an interview with Telephony last week. “Throughout this period of action, we've maintained customer retention 10% to 15% higher than we expected.” Operating expenses are expected to be down 42% year over year to $900 million for 2002. In addition, the carrier's 2002 capital expenditure budget is anticipated to be less than $200 million, compared with $3.2 billion in 2001.

Those developments, along with the 60 parties that Global Crossing said are interested in buying its network, make the $750 million offer inadequate, the creditors committee said. Now an auction of the carrier's assets is scheduled for July 8.

Individual creditors declined to be interviewed or did not return phone calls seeking comment last week.

The creditors may be expecting too much from the auction, though. “They've already demonstrated their judgments on a lot of these matters,” said Frank Barbetta, senior analyst for global carriers with Probe Research. “I would be skeptical of whether they know what they're doing.”

The most challenging hurdle in landing a better offer may depend on supply and demand. Since Global Crossing declared bankruptcy, a host of other fiber carriers have also filed for Chapter 11, including Flag Telecom, Williams Communications and Teleglobe. These bankruptcies, analysts said, will likely result in fewer bidders and lower bids for Global Crossing.

In addition, according to Julian Rawle, senior market analyst with Pioneer Consulting, it may be easier for companies to invest in the assets of Flag or Williams, which may be more willing to sell themselves off piecemeal.

Global Crossing has more upside than those companies because it has a larger backbone that is complete and an efficient operational structure, said Legere.

“They're distressed assets,” he said. “We are not a set of assets.”

Regardless, no official offer for the company is on the table. In part to counter the possibility of a low-ball bidder stealing away the company, Global Crossing itself plans to put together a bid, under which the company would continue to operate independently. Keeping its core network intact is key to maximizing Global Crossing's value, whether as a stand-alone entity or as part of a larger carrier, Legere said.

“You not only want to move through restructuring, but you want to have a competitive differentiation when you emerge,” he said. “With a global network fully intact, we have an advantage.”