Global Crossing Ltd., Gary Winnick's once high-flying Bermuda-based telecom firm, filed for bankruptcy protection Monday with some $11 billion of debt on its books.
Arthur Andersen, reeling from its role in the Enron scandal, idly watched as the Global Crossing stock price dropped from $61 per share two years ago to less than a dollar today.
Global Crossing collapsed under its own weight as worldwide demand for phone and data services dried up.
Founder Winnick, formerly of Drexel, Burnham Lambert, and other managers were unable to drum up new business to cover losses from telephone and Internet carriers that leased network space and then folded or cut their budgets.
Hong Kong businessman Li Ka-shing's Hutchison Whampoa Ltd. and Singapore Technologies Ltd. will bail out the ailing firm with a $750 million letter of intent to take a majority stake in the newly restructured firm.
The new deal will eliminate Global Crossing's current equity investment, which in mid-2000 was as high as $12 billion. And it will allow the company to restructure its balance sheet by August 2002.
All potential scenarios will be dependent on approval from the U.S. Bankruptcy Court as well as the Supreme Court of Bermuda. Creditors will share in a combination of cash, new debt and new equity in the restructured company.
"Debt holders won't necessarily be left with nothing," said analyst Michael Hodel of Morningstar Inc. "They do have a nice set of assets there. Those bondholders have a chance of being compensated."
Global Crossing was created by Winnick to foster a fiber-optic network linking the U.S., Europe and Asia. The company, which had $3.8 billion in sales last year, struggled with debt in building its global web, linking more than 200 cities in 27 countries.
The filing throws a dark cloud over other telecom firms like Broadwing Inc., Williams Communications Group and Level 3 Communications Inc. Those companies will be forced to compete against Global Crossing, which will be able to drastically cut rates to service its debt.
Global Crossing representatives, however, downplayed the bankruptcy filing.
"Ours is a balance sheet issue, not an operational one," said John Legere, chief executive officer of Global Crossing. "Today's actions are intended to directly address this issue."
The company also announced that employees will continue to be paid wages and other benefits. Operations will not be affected, and customers are not expected to see any delays or problems in their service.
Trading of Global Crossing stock was halted Tuesday morning.
As of Sept. 30, the Hamilton, Bermuda company had $11 billion in debt and $2 billion in cash.