Winstar Defaults, Faces Bankruptcy
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Officials at fixed wireless provider Winstar Communications, Inc., announced Monday night they couldn't meet the aggregate interest payment on $75 million in senior debt securities due at the close of business.
The company also missed several extensions granted over the past week-and-a-half by Lucent Technologies to make payments, according to Mary Lou Ambrus, a spokesperson for the Murray Hill, NJ-based equipment manufacturer.
"Indeed, Winstar is both in breach of their financial covenants and a payment default with us," Ambrus said. "We're clearly saddened by this latest development."
The news throws more fuel to the fire of speculation that the company will file for bankruptcy protection. A statement announcing the payment default stated that the company "is considering all appropriate actions, including the possibility of a reorganization under Chapter 11 of the U.S. Bankruptcy Code."
The company holds the largest block of fixed wireless spectrum in the world, with spectrum licenses blanketing the U.S., Japan and Europe. The breadth of the company's wireless holdings is also the root cause of its current financial strain.
Winstar paid for its worldwide domination through the funding of many capital venues available up until last year, burning through nearly $175 million a month in 2000.
When the market deflated last year, the company belatedly pursued customers to shore up its mounting losses.
According to a report issued by Goldman & Sachs, it's a flawed trend taken by many competitive local exchange carriers.
"For some carriers, the capital structure does, or will, represent a problem, and solutions should be sought before the wolf is at the door," the report said. "The CLEC model works, but the capital structure of some carriers represent an impediment to its success."
With losses mounting, the company looked for a savior in the form of Qwest Communications, which was rumored to be looking for a wireless arm to compete with the likes of Verizon Communications, Sprint Corp. and AT&T Corp.
Winstar's hopes were quashed when Qwest issued a statement saying it was most definitely not looking to acquire the troubled wireless carrier, forcing Winstar executives to lay off 2,000 employees to cut costs.
Officials said in their statement that normal business operations would continue while lawyers from the Blackstone Group looked over the company's options.
Time is running out, however. It's stock
has been trading under $1 per share for more than a week. After 30 consecutive days, Nasdaq will be forced to delist the company.