Cisco notifies Convergent of vendor credit default

Convergent Communications said yesterday it has been notified by Cisco Systems that Convergent is in default on a vendor-financing agreement.

The news follows Convergent’s announcement last week that it has been unable to secure funding for its $60 million to $70 million cash shortfall, and that the Nasdaq SmallCap would delist the company’s stock effective April 17.

Although details of the financing agreement were not provided, one scenario is probable, said Michael Perica, vice president of equity research at Gruntal & Co.

“The bottom line is Cisco Capital is acting like the bank,” Perica said. “The most likely scenario is [Convergent] missed a payment and [Cisco] said, ‘Guess what? You’re done.’”

Though the default negatively impacts Cisco’s revenues, Perica said the company could be playing hardball and recognizing even the slightest violation as an agreement default. The idea could be to sever its relationship with Convergent before the troubled company potentially declares bankruptcy protection.

“If I’m Cisco Systems and they violate any little thing, I take the equipment back before you can go bankrupt and you’re protected from creditors… instead of putting it on the market for pennies on the dollar,” Perica said.

Neither Convergent nor Cisco could be reach for comment.

In late-day Nasdaq trading, Convergent’s stock was at 10 cents, up from yesterday’s close of 3 cents.