Metromedia Fiber Network defaults on interest payment

Metromedia Fiber Network has defaulted on an $8.1 million interest payment due March 29 on $231 million in term notes issued to Nortel Networks. In a statement, MFN said it would not be able satisfy other near-term cash requirements if it made the interest payment to Nortel on the notes that come due in 2007.

The Nortel default triggered a series of cross-defaults. Lenders affected include a group led by Citicorp, which holds $150 million in floating-rate guaranteed term notes due in 2006; Bechtel Corp., which holds $62.5 million in 8.5% senior subordinated convertible notes due in 2003; and Verizon Communications, which holds $50 million in senior secured convertible notes. In addition, MFN defaulted on $180 million in 8.5% senior convertible notes due in 2011--as well as certain promissory notes--held by a variety of lenders.

The default actions mark the second time in three weeks that MFN has been unable to meet its debt obligations. On March 15, the company announced that it would defer a $30 million interest payment due to Verizon on $975 in 6.15% subordinated convertible notes. MFN had a 30-day grace period to make good on the payment before going into default, which would occur on April 15. As of today, the company had yet to make the payment.

An MFN spokeswoman today said the company is currently negotiating with all of its lenders to restructure the company’s debt. Leading the effort will be President & CEO John Gerdelman and Robert Doherty, executive vice president and chief financial officer (CFO), both of whom were appointed to their positions today. According to a statement, former President and CEO Mark Spagnolo and Randall Lay, senior vice president and CFO, “elected to leave MFN to pursue other interests.”

“They’re going to be working with the creditors to figure out what can be done to restructure it, but we don’t have any formalized plans or proposals to announce,” the spokeswoman said.

The company acknowledged that it might have to file for Chapter 11 protection should it be unable to work out a more favorable deal with its creditors.

“We’re looking at all options and that’s just one of the options we might need to look at. But we’re sitting down with all of our creditors to see if there’s something else we can do to restructure the debt outside of that,” said the spokeswoman.

The spokeswoman could not disclose whether MFN is considering the sale of one or more of its units to help drive down debt. “No plans have been announced right now,” she said.