MFN granted more funding extensions

Potential investors gave Metromedia Fiber Network more extensions in its prolonged funding drive last week, reflecting yet again that the financially strained company has valuable assets.

MFN's metropolitan dark-fiber holdings will help break bottleneck problems that have been resolved in terrestrial and submarine long-haul networks, making them one of the key assets of the telecom industry, said Cary Robinson, senior research analyst for communications services at U.S. Bancorp Piper Jaffray.

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“A lot of people are recognizing that while the company has financial problems, the reality is they have an asset everybody needs,” he said.

The numerous extensions MFN has received indicate those investors are committed to the company. The longer it takes MFN to close the deals, however, the greater the operational pressure the company will experience.

“They need to get [their funding] done because they're going to run out of money at some point,” said Robinson, whose own model shows MFN running out of cash this quarter. Indeed, MFN has publicly disclosed that it will file for bankruptcy protection if it cannot secure the necessary funding.

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Overall, MFN has announced at least 10 funding extensions since it passed the original Aug. 1 deadline imposed by one of its potential investors. One reason MFN had yet to close its funding efforts as of press time has been the intricate set of conditions potential investors have placed on the company.

MFN has received commitments for a $150 million note facility, $231 million in vendor financing and $230 million in additional funding. Each of these facilities requires that the other sources of funding be closed before they themselves can be finalized. MFN also must receive permission to delay payments to certain vendors as part of the funding package.

In addition, a new and possibly more problematic stipulation has arisen as a result of the destruction of the World Trade Center.

Citicorp, the lead investor in MFN's $150 million note facility, has added the proviso that MFN not be materially adversely affected by the attack on the WTC. A look at MFN's New York network, however, reveals that the company has a significant amount of fiber in Manhattan's financial district (see figure).

According to a spokeswoman for MFN, the company's network in the area is still operational. “The network is working fine,” she said. “We haven't gone in to inspect the fiber at ground zero.”

In all likelihood, MFN's assets in the area were not severely damaged by the attack. As a wholesaler of dark fiber, the company itself does not install equipment for the operation of its metropolitan networks.

But MFN likely has lost revenue because some customers are no longer using services because of the attack. MFN has yet to tally such a revenue loss.

Because Citicorp has had numerous chances to pull out of the agreement, the company may be committed to working with MFN and is willing to accept some effects from the attack. If that's the case, the new stipulation is simply an insurance policy, Robinson said.

“The reason Citicorp put that into the contingencies is because no one knows [the impact]. They are a big fiber-optic provider in that city.”

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Competition Watch The Association for Local Telecommunications Services announced its conference scheduled for this week in Crystal City, Va., will be conducted from Nov. 28 to Nov. 30 at the same location in observance of recovery efforts related to the terrorist attacks. ALTS said many of the original keynote speakers — most notably FCC Chairman Michael Powell — plan to attend on the new dates. Focal Communications recently installed a second Nortel DMS-500 switch in the Los Angeles area to ease the traffic burden from its first L.A. switch, which was installed in 1999 and handles more than 55,000 business lines. Major interexchange carriers AT&T, Sprint and WorldCom last week argued before a U.S. appeals court that SBC Communications' long-distance approvals in Kansas and Oklahoma should be overturned because SBC has not opened its local networks to competition as required under the Telecom Act of 1996. The FCC approved SBC's Section 271 applications, citing data provided by state regulators. return to top