Claiming total liabilities of $4.3 billion, PSINet Inc., the pioneering wholesale Internet service provider that went on an aggressive acquisition binge over the last four years, has filed for protection under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York. Included in the filing are 24 PSINet operating subsidiaries in the U.S.
Four Canadian subsidiaries also have filed for protection under the companies' Creditors Arrangement Act statutes, enacted in Canada in 1985, in the Ontario Superior Court of Justice.
At the time of the filing, the Ashburn, Va.-based PSINet had total assets of $2.2 billion. Of the $4.3 billion in liabilities, $2.9 billion is bond debt. the companies involved in the filings had approximately $300 million of unrestricted cash, cash equivalents, short-term investments and marketable securities on hand. The company believes this cash balance will provide sufficient financial resources to fully fund operations during the anticipated restructuring period.
"We expect that the steps we are taking today will provide us with the flexibility and time to explore all strategic alternatives," said Harry G. Hobbs, president and chief executive officer of PSINet. "We are asking the Courts for permission to continue to pay employees in the normal course and to continue their medical, retirement and other benefits."
Hobbs also said PSINet and its subsidiaries intend to pay vendors on a timely basis for goods and services they deliver after the filing date.
An official company statement noted that while PSINet had received a number of offers for debtor-in-possession financing, the company had declined these offers in light of its cash position.
The company also announced that it has signed a letter of intent with Telus Corp., one of Canada's largest telecommunications companies, to sell PSINet's Canadian operations and facilities. The proposed purchase is subject to a number of conditions, including regulatory approval and approval under the bankruptcy proceedings. In Canada, PSINet serves most major markets and provides Internet access, Web hosting, e-security and e-commerce application services to the business and ISP markets. Financial terms of the Telus deal were not disclosed.
Additionally, the PSINet said it has entered into a definitive stock purchase agreement for the sale of its operations in Panama to REE Panama, S.A., and has closed on the sale of substantially all of its business operations in Puerto Rico. Terms of these transactions also were not disclosed.
PSINet's European and Asian subsidiaries, which were not covered in the filings, are expected to continue to operate independently, as before the filings. The company believes that these subsidiaries have sufficient resources to meet their obligations through the restructuring process.
The company said is considering "all strategic alternatives" for its operations in Latin America, and is in discussions with a potential purchaser group. However, PSINet noted, "no assurance can be given that those discussions will result in a sale of the Latin America business."
PSINet's Metamor and its subsidiaries, which also were not included in the filings, continues to operate as before. While Metamor is currently in compliance with its financial obligations, including its convertible subordinated notes, the company is in discussions with the Metamor note holders.
