Level 3 Rushes to Reassure the Public
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Level 3 Communications officials were quick to assure vendors, customers and shareholders alike who may be still jittery following this week's highly publicized calamities with other backbone and broadband companies.
After inquiries from analysts, Level 3 Chief Executive James Crowe issued a statement saying they hadn't violated the terms of a $1.775 billion senior secured credit facility.
Based on his company's Wednesday first quarter 2001 guidance, Level 3 is relatively safe from defaulting on its loan, he said, and that analysts didn't take into consideration the methods used to determine how financial covenants are calculated.
"Additionally, if we continue to execute on our business plan and achieve our revised guidance, we will satisfy our covenants by a comfortable margin," Crowe said.
Despite a mounting net loss, from $271 million in 2000 to $535 million, James Lee, vice chairman of J.P. Morgan, and lead arranger of the credit facility, said the backbone provider is not in danger of violating the terms of the loan.
"Based on information provided to J.P. Morgan by Level3, the revised projected revenues set forth in Level 3's first quarter earnings release, if attained, would not result in a breach of the minimum revenue covenant in Level 3's bank facility," Lee said.
Lee went on to say that revenues associated with dark (unused) fiber were modeled after accounting practices in effect in 1999, so were reported differently in 2001.
The company has faced dwindling returns for a company that delivers fiber optics IP technology to a bandwidth-hungry Internet world.
The company touts its intentions to provide the first international end-to-end IP network, a ring of local and long-distance networks, expected to be completed in 2005.
Level 3 has been successful selling off major portions of its network in the U.S. In 2000, the company netted $2 billion in contracts from providers like McLeodUSA, Inc., and XO Communications, Inc.
It's something of a habit for Level 3's chief executive officer to keep the public informed. In recent months, Crowe has kept his shareholders in the loop with several such missives.
Last month, the chief executive officer announced his intentions to sell off a chunk of his personal shares in Level 3. In November, 2000, Crowe sent out an open letter after its stock value dropped from a company-high $132.250 per share value to $35.
It's a drop that's touched all companies in the high-tech community, from component makers like Cisco Systems, Inc., to companies that provide bundled business solutions like Exodus Communications.
The bear market that looks to be turning bullish in light of the Federal Reserve's half of a point interest rate drop has still left its marks on the industry.
Toronto-based Nortel Networks Corp. Thursday night announced it would lay off 20,000 jobs in the coming months, 5,000 more than it had previously announced. Net losses for the first quarter 2001 were $38 million more than its net gains.
John Roth, Nortel president and chief executive officer, said the aftershocks of the bear market will be felt throughout the year and doesn't expect his company to rebound until market conditions are improved.
"We only expect a meaningful rebound in capital spending following a period of industry rationalization and an improved economic environment," Roth said. "Give the uncertainty as to the extent and timing of these events, we are not providing specific financial information for the next quarter or full year 2001."