Globix in Early Bankruptcy Talks

By Erin Joyce

Shares of Internet hosting company Globix Corp. were trading at 15 cents Friday after dropping below 5 cents on Thursday when the company said it is in preliminary bankruptcy discussions with bondholders.

The announcement was part of the New York company’s fourth quarter results that reflected the continuing woes in the telecom sector: net losses more than doubled from the same, year-ago period, primarily due to lease terminations, severance packages, bad debts and troubles with suppliers.

On Thursday, Globix said it is in discussions with an informal committee of bondholders who hold about 48 percent of its $600 million senior notes. The talks are aimed at restructuring its debt load in a pre-packaged bankruptcy proceeding. In addition, similar talks are ongoing with preferred stockholders.

“While there can be no assurance that these discussions will lead to an agreement, it is likely that any such agreement would result in the bondholders and preferred stockholders owning nearly all of the equity in the reorganized company, resulting in a near total dilution of the existing common stockholders’ interest,” Globix said.

For the fiscal fourth quarter which ended Sept. 30th, Globix’s net loss was $73.6 million ($1.89 per share), more than double its net loss of $30.1 million (81 cents per share) during last year’s fourth quarter.

During the fourth quarter revenues were $25 million, compared to $25.9 million in the prior year quarter. For the fiscal 2001 year, Globix said revenues were $104.2 million compared to $81.3 million in the prior fiscal year.

Globix, which has been scaling back its data hosting operations at sites around the globe, took an $18 million restructuring charge during the quarter, which included the termination costs of leases, write-off of leasehold improvements, excess equipment and employee termination costs.

Globix also recorded a $3.5 million write-off of network assets “impaired by the financial viability of a supplier.”

It also took a $4 million charge to reflect an increase in bad debts.

Peter Herzig, chief executive officer, said the company believed it would not be able to meet its previous guidance for fiscal 2002. In light of the talks with creditors, he said Globix would provide new guidance when it releases its first quarter results at the end of December.

In a statement, he also said he was optimistic that the company would reach an agreement with bondholders and preferred stockholders, as one of the most difficult years in the telecom industry came to a close.

“The events of September 11, coupled with turbulent market and economic conditions and the dot-com fall out, have affected all participants in our market. We are seeking to greatly reduce our debt burden so that we will have the necessary liquidity to focus on the competitive advantage Globix enjoys as a premium provider of complex hosting services.”

The company closed out its fiscal year with $111.5 million in cash, which the chief financial officer said was ahead of expectations as the company continues to focus on cost reductions and conserving working capital.