Log in

Winstar Files for Bankruptcy

18 Apr, 2001 By: Press News

Two days after missing a $75 million debt payment to Lucent Technologies, Winstar Communications Inc. has filedfor bankruptcy protection, adding to a growing list of casualties among new-fangled communications carriers.

Winstar, operator of a wireless network providing high-speed Internet access to office buildings, also said Wednesday it has filed a $10 billion breach of contract lawsuit against Lucent, the ailing equipment maker that's been one of Winstar's main suppliers and lenders.

The bankruptcy petition, filed Wednesday along with the Lucent suit in U.S. Bankruptcy Court in Delaware, reports that Winstar had about $5 billion in outstanding debts at the end of February.

Winstar, which earlier this month laid off 2,000 employees, or nearly half its work force, said in a statement it expects to continue delivering wireless data services to its 30,000 customers while restructuring its finances.

Lucent, owed about $700 million by Winstar, rejected Winstar's charges that Lucent has breached its obligations under a $2 billion strategic partnership that Lucent terminated after Monday's missed debt payment.

In addition to $10 billion in damages, the lawsuit asks the court to force Lucent to make a $90 million payment that Winstar said was due at the end of March under their partnership deal.

"Clearly, this lawsuit is absolutely frivolous and without an ounce of merit," said Lucent spokesman BillPrice, arguing that Lucent had been patient with Winstar despite Lucent's own financial troubles, including an estimated debt of about $7.5 billion. "We had granted them several extensions (on debt payments) and they went into default Monday. That's when we terminated the supply agreement."

Winstar's statement charged that "Lucent represented that it had the expertise, personnel and financialwherewithal to undertake its obligations under the supply agreement... Little more than two years into the five-year agreement, Lucent has shown its promises were hollow."

Legal quibbling aside, Winstar's fall marks yet another financial meltdown by a new-age communications company. And Lucent's predicament is only the latest sign that top producers of communications equipment, including Cisco Systems and Nortel Networks, may have gone too far inallowing unestablished companies to buy on credit. At last count, Lucent was owed about $1.8 billion by its customers.

Even as the Internet craze began crumbling a year ago, Winstar and other upstarts like XO Communications, Teligent and PSINet were applauded for their high-priced plans to build cutting-edge networks and provide high-speed Web connections.

All were seen reaping fortunes from an inevitable explosion of electronic commerce and Internet traffic,no matter what happened to the dying dot-coms of today. But as the overall economy slowed and the stock market tumbled, revenues dropped sharply and lenders grew far less generous with their money.

By now, most of the players have cut back sharply on their spending plans, but it's not clear whichones will have enough cash and credit to survive.

Those with deep-pocketed backers have the best chance. The New York Times reported Tuesday that XO Communications may get a cash infusion from the investment bank Forstmann Little, whichhas already sunk $1.2 billion in the venture.

But for the most part, investors are dubious: Winstar, Teligent and PSINet have lost more than 99% of their stock market value over the past year.

On Tuesday, PSINet reported a fourth-quarter loss of $3.2 billion and warned that it would likely seek federal bankruptcy protection.

Bankruptcy protection will buy these companies some time, but there's no guarantee they'll survive.Last month, a bankrupt high-speed Web service named NorthPoint ran out of money and pulled the plug on its DSL network, selling its assets to AT&T.

Add Comment