PSINet: Shares may soon be worthless

Shares of PSINet dropped nearly 74 % yesterday after it announced that even with a successful debt restructuring, the company’s stock value could soon be worthless.

The Internet access and Web-hosting provider said it hired financial adviser Dresdner Kleinwort Wasserstein to help it avoid defaulting on its roughly $3.4 billion debt to creditors. Dresdner’s activities will coincide with efforts by Goldman, Sachs & Co., which PSINet enlisted in November to identify non-core business divestitures and explore merger opportunities.

But PSINet said that even if the two firms are able to restructure the company, “it is likely that the common stock of the company will have no value, and the indebtedness of the company will be worth significantly less than face value.”

Investors ran for cover upon hearing the news, sending the company’s Nasdaq stock value from 72 cents to a closing value of 19 cents. Shares sank as low as 9 cents during Monday’s trading.

One analyst said that although PSINet is in all likelihood headed for bankruptcy protection, the company still has enough cash to see it though the second quarter. But an acquisition remains unlikely because buyers would absorb the company’s heavy debt burden, making a purchase a losing proposition.

“The appetite for mergers is lower than it was a year ago,” said Dan Renouard, vice president of research at Robert W. Baird & Company. “This needs to get in the debtors possession before they can negotiate a deal because management doesn’t have the right to negotiate a deal for the debtors.”

Nearly forgotten was the announcement that Harry G. Hobbs would step into the company’s President and COO spot where he will oversee all global operations. Hobbs was promoted internally from his executive vice president and divisional president post where he handled international operations.