PSINet files for Chapter 11

PSINet today announced it has filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Four Canadian subsidiaries have also filed for protection in that nation.

The announcement comes as no surprise, following the company’s default on a $20.1 million interest payment on 11.5% senior notes and delisting from Nasdaq in recent months.

In addition, PSINet posted a staggering $3.2 billion loss applicable to common shareholders for the fourth quarter 2000.

“A series of events and decisions they made ultimately brought the company down,” said Dan Renouard, vice president with Robert W. Baird & Co. “They made a lot of acquisitions and didn’t focus on integration and the execution end of the business…Spending freely with debt, in hindsight, certainly contributed.”

Despite the troubles, PSINet plans to use bankruptcy to reorganize. Possible outcomes for the company include sale or a re-emergence as a standalone entity.

To carry it though this restructuring process, PSINet has about $300 million in unrestricted cash, cash equivalents, short-term investments and marketable securities. In fact, PSINet says it has refused offers of debtor-in-possession financing.

“The company had about $300 million on the day before the filing, and the company thinks that that cash balance provides sufficient financial resources to fully fund operations during the anticipated reorganization period. In light of its cash position, the company declined the offers for the debtor-in-possession financing,” said a PSINet spokesman.

The announcement has had repercussions on some of PSINet’s global subsidiaries. PSINet has signed a letter of intent to sell its Canadian operations, which provide Internet access, web hosting, e-security and e-commerce application services, to Telus for a sum that has yet to be determined.

Additionally, PSINet has entered into a definitive stock-purchase agreement for the sale of its Panamanian operations to REE Panama and has closed on the sale of substantially all of its business operations in Puerto Rico.

PSINet’s European and Asian subsidiaries are not affected by the bankruptcy filing and are expected to continue to operate independently. The company believes these subsidiaries have sufficient resources to meet financial obligations throughout the restructuring process.