Global Crossing, which provides network services to interbank messaging utility Swift, has filed for Chapter 11 protection from its creditors, taking its place as the fourth largest US bankruptcy in history.
The company, which provides voice, data and network services to many financial services organisations, is struggling to re-organise its debt. Two Asian telecoms companies, Hutchison Whampoa and Singapore Technologies Telemedia have expressed an interest in taking a 60 per cent controlling stake in the business for $750 million.
Losses of $3.4 billion in its last quarter, against a background of an annual debt servicing burden amounting to $600 million per annum, illustrate the size of the hole in the company's finances. Filing documents claim the company still has some $900 million of cash.
The scale of the company's problems became visible in mid December as dividend payments were halted and loan covenants renegotiated. Late in December the company's IPC Trading Systems unit was sold to Goldman Sachs for $360 million in cash.
The company's most visible finance sector client, Swift, has been pre-emptively distancing itself from the implications of a corporate failure at Global Crossing. Swift CEO, Lenny Schrank, has expressed confidence that the bank co-operative could itself step-in and take control of relevant network assets if necessary. Other notable clients include a deal recently struck with JP Morgan Chase & Co. to support its 'Hoot'n Holler' network worldwide.
At its peak Global Crossing was valued at around $80 billion. The refinancing valuation would place a value of around $1.25 billion on the business.
Global Crossing spent billions building a worldwide fibre optic cable network. Today the network reaches 27 countries and 200 cities. However, as hopes for the New Economy receded, and indeed the growth of the Old Economy also slowed, expected demand for high speed networks never materialised.
Global Crossing's position is far from unique in the telecoms sector. Elsewhere, UK-based telecoms group, Energis, is also in talks with bankers and creditors attempting to renegotiate the terms of its loans in a bid to provide stability to its share price.