With mounting debt and creditors lining up with outstretched hands, broadband backbone provider Winstar Communications Inc. on Wednesday filed a $10 billion lawsuit against Lucent Technologies Inc. for allegedly violating a vendor financing agreement.
Winstar accused the telecom equipment giant of failing to meet obligations of a supply agreement, which Winstar said forced it to seek protection from creditors by filing for bankruptcy.
Winstar, which has ownership stakes in at least two Silicon Alley Internet companies, filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court for the District of Delaware Wednesday morning.
The Nasdaq exchange also halted trading in Winstar stock this morning while it sought additional information on the company’s financial position.
With plans to reorganize and restructure its balance sheet under court protection, Winstar said it had raised $75 million in debtor-in-possession emergency financing with a consortium of banks to keep operations running smoothly.
The group of banks includes CIBC, Citicorp, Credit Suisse First Boston, The Bank of New York and The Chase Manhattan Bank and the company said the amount of the emergency funding could be increased $300 million if certain conditions are met.
Winstar said the bankruptcy proceeding would not affect its day-to-day operations.
In the lawsuit against Lucent, Winstar is seeking $10 billion in damages for the equipment maker’s alleged breach of obligations under a strategic partnership between the two sides.
On Monday, Lucent accused Winstar of being in default of that agreement. Officials at Lucent’s Murray Hill, N.J. headquarters did not return calls by press time.
A statement from Winstar added: “In addition, Winstar is seeking immediate injunctive relief requiring Lucent to specifically perform its contractual obligations, including the payment of more than $90 million, which Lucent failed to pay to Winstar on March 30, 2001, in breach of its agreement,” the company said.
“Little more than two years into the five-year agreement, Lucent has shown its promises were hollow.”
Winstar further charged that Lucent, which faces regulatory scrutiny over its accounting practices regarding equipment sales, has some questions to answer regarding its vendor financing transactions. “Lucent breached its agreement with Winstar and injured Winstar’s ability to complete its broadband network,” the complaint said.
Winstar said its ability to emerge from Chapter 11 reorganization as a successful operating entity is not contingent on the receipt of any damage award in this lawsuit.
Chief executive officer, William Rouhana Winstar, said Winstar expects to emerge from the bankruptcy proceedings with a new balance sheet with significantly less debt.
“While this was a very difficult decision to make, given the current circumstances, we determined that we needed to take decisive action for our employees, customers and creditors, to maximize the value of our business,” he added.
Winstar, which laid off approximately 2,000 employees two weeks ago to cut costs, 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 investment in wireless holdings, with scant revenues to show for the effort, is seen as a major cause of Winstar’s 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.
