Only days after NorthPoint
Communications shut down some of its digital subscriber line operations
nationwide, Rhythms NetConnections
Inc., is looking for its own exit strategy.
Under fire from auditors to find operational cash, the data competitive
local exchange carrier’s (DLEC) flagging stock value has put them in danger
from anther source, its officials announced Monday afternoon.
Rhythms officials said stock index Nasdaq is getting ready to issue a formal
delisting notification, since the nationwide DSL provider has been trading
for more than a month under $1. That’s down 99 percent loss from its peak
value in the $90 per share range only two years ago.
At press time, officials haven’t said whether they will appeal a decision by
Nasdaq to delist them. According to its 10K filing to the Securities and Exchange Commission Monday, if
the company doesn’t appeal the stock index’s decision, officials will try to
get listed on the Small Cap Market board.
Listing on the Over The Counter Bulletin Board, the lowest rung on the stock
ladder, is considered the death knell for a public company and is the
least-favorite option for Rhythms stock, though likely. NorthPoint was put
on the OTC board when Nasdaq delisted them.
It’s a bad sign for broadband Internet Service Providers (ISPs) still
scrambling to find another DSL provider after AT&T‘s recent purchase of NorthPoint
equipment. The deal stranded more than 100,000 DSL users nationwide and
brought the debate of high-speed access to the fore.
A Rhythms spokesperson would not comment on the status of Rhythms
operations, and would not speculate on the fate of its customers should the
company go out of business.
In its statement, the national broadband provider said it had hired
investment banking firm Lazard Freres & Co., LLC, to evaluate its strategic
and financial operations.
Lawyers will determine the best course for Rhythms shareholders, not
necessarily its DSL customers. Exit options include debt financing or
restructuring, asset or equity securities sales, consolidation, or public or
private sale.
Rhythms has been busy shoring up its operations the past few months to save
money, a result of the economic downturn that’s affected the entire
high-tech industry.
In January, the company was forced to lay off 450 employees and take a $15-$17 million restructuring
charge.
Losses are also mounting for the DLEC. In December of 2000, it reported
accumulated losses of $825 million and expects the number to significantly
increase in 2001. But officials state the company has enough cash on hand
to continue operations to the end of the year.
A look at their 10K filing shows the DLECs situation isn’t quite as dire as
what happened with NorthPoint.
NorthPoint claimed it didn’t have the money to support DSL operations until
ISPs could find another provider. Rhythms, in addition to any funds it has
in the coffers, sports a stock portolio that could be cashed in, in the
event of an emergency.
The broadband provider has nearly $15 million invested in @Home Network
Solutions, Inc. (an investment Rhythms is currently trying to get back), and
$2.5 million in broadband ISP MegaPath Networks, Inc.
NorthPoint, on the other hand, was cash-strapped and out of options when it
was delisted by Nasdaq in February.
