360networks files reorganization plan with courts

The Canadian and U.S. subsidiaries of 360networks Inc. announced late last week that they have filed reorganization plans with bankruptcy courts in their respective countries. The plan, if accepted, would allow the Vancouver-based tech company to reform and emerge from bankruptcy protection by September.

Under the plan, senior secured lenders, led by J.P. Morgan Chase Bank, would become secured shareholders, while unsecured creditors of the subsidiaries and employees would hold the remaining stake in the new enterprise. Shareholders and unsecured creditors, including bondholders of the parent company will get nothing. The new standalone enterprise would begin with US$215 million debt and more than US$50 million of cash on hand.

One analyst was skeptical of the new effort.

“Just because you’re reorganizing doesn’t mean you are going to survive under the new plan, if you couldn’t survive under the old plan,” said Brownlee Thomas, Montreal-based senior industry analyst from Giga Information Group. “The interesting thing will be how [360networks] intend to position themselves in the market to succeed where they failed before. So you can put them in the same category with Teleglobe (Inc.), Level 3 (Communications) and Global Crossing.”

Trying to compete in a market that includes those three companies wouldn’t be a fair fight, according to Thomas.

“Level 3 just received US$500 million cash injunction, but Level 3 always makes sure to it has US$1.3 to US$1.5 billion cash on hand. I’m not persuaded the wholesale market is a viable one long-term,” Thomas said. “Teleglobe is the fourth-largest international backbone network operator because they’ve had…cable and satellite systems for more than 50 years.”

The key to the reorganization will be the new company’s business model, Thomas stated. In a press release, Greg Maffei, president and CEO of 360networks said, “…our business plan anticipates no need for additional funding in the near term.”

“It’s good they’re coming out of bankruptcy, they’ve been in bankruptcy for a whole year…they have had several extensions from the courts, but what is their business model?” Thomas stated.

The restructuring plan would dissolve the parent company 360networks, which filed for bankruptcy protection in Canada and U.S. in June 2001.

360networks offers optical services and network infrastructure to telecom and data communications companies in North America, across its 40,000 kilometres of lines that connects 48 major cities in Canada and the U.S. This is a far cry from company’s original idea of encircling the world with a fibre-optic network. A combination of debt and the industry’s bandwidth oversupply crushed that dream.

Thomas saw the plan as including the entire North American market, which she added should spell trouble for the company.

“That looks like U.S., and that looks like bloodbath,” Thomas said. “I’m not persuaded that a player that’s that small will succeed where much, much bigger fish have failed,” she explained.