Genuity Files for Bankruptcy Protection Wed Nov 27,10:22 PM ET Add Technology – AP to My Yahoo!
By JUSTIN POPE, AP Business Writer
BOSTON (AP) – Internet backbone company Genuity Inc. filed for bankruptcy protection Wednesday as part of an agreement that will transfer its assets to Level 3 Communications Inc. for $242 million.
Genuity, which operates one of the key components of the infrastructure that supports the Internet, became the latest high-profile telecommunications company to file for bankruptcy protection, following WorldCom, Global Crossing and others.
Genuity’s fall into bankruptcy began in July, when Verizon Communications said it would not exercise an option to regain control of the Broomfield, Colo.-based company, putting Genuity in default of a $2 billion line of credit.
Genuity, Verizon and lenders negotiated for months, and Genuity managed to pay back more than $200 million, but ultimately failed to negotiate a settlement that avoided bankruptcy.
The companies said Level 3 would operate Genuity as a separate business still based in Woburn, Mass. If the plan is approved by a U.S. Bankruptcy Court judge, creditors would receive Level 3’s $242 million. They would also get any cash left over on Genuity’s balance sheet after it funds operations. The company currently has $800 million in cash.
“This was triggered by Verizon’s decision, because of changing business needs and market conditions … not to exercise their option on Genuity,” Paul R. Gudonis, Genuity’s chairman and chief executive officer said in a telephone interview.
Genuity shares fell 43 percent, or 20 cents, to 26 cents each on the Nasdaq Stock Market. Level 3 shares rose 8 percent, or 41 cents, to $5.60 each.
Federal regulators required GTE and Bell Atlantic to spin off Genuity as part of their merger agreement two years ago, but said the new company, Verizon, could maintain a stake and take back Genuity by 2005 under certain conditions.
Verizon, facing an already glutted market for networking capacity, declined.
Besides Verizon, Genuity’s biggest customer is America Online, which uses Genuity’s network for both its dial-up and high-speed DSL service, though the share of Genuity’s total revenue from AOL has fallen, from 52 percent in 1999 to 35 percent of the $1.2 billion it brought in last year.
Gudonis said customers would feel no impact from the bankruptcy filing and acquisition.
But, he said, more layoffs were likely. Genuity has laid off more than 3,000 workers, and revenues for its most recent quarter were $222 million, down almost a third from a year ago.
He declined to speculate about his own future.
“My responsibility is to lead the company through this acquisition to the benefit of our creditors, customers and employees,” he said. “After that, it’s just inappropriate to talk about my personal plans.”
The AOL business and Genuity’s other assets now fall into the hands of Level 3, which has its own 20,000-mile broadband fiber-optic network.