April 19, 2001 -- (Reuters) - Cash-strapped telecommunications services provider Winstar Communications filed for bankruptcy protection on Wednesday, blaming Lucent Technologies for violating a vendor financing agreement and forcing the filing.

New York-based Winstar also filed a $10 billion lawsuit against Murray Hill, N.J.-based Lucent. The telecommunications equipment giant has already lent Winstar about $700 million, according to people familiar with the matter.

The Nasdaq on Wednesday halted trading in Winstar shares, which closed Tuesday at 14 cents, down nearly 99 percent this year, pending additional information. Winstar's debt was recently quoted at two cents on the dollar.

In filing for reorganization under Chapter 11 of the U.S. Bankruptcy Code, Winstar also said it arranged for $75 million of debtor-in-possession financing with a group of banks to allow it to keep running normally as its case wends its way through the courts. The amount could rise to $300 million if certain conditions are met, it said.

Winstar, which uses a new technology that transmits voice and high-speed data service using radio signals instead of fiber-optic cables or phone wires, is one of several telecoms unable to raise needed cash to grow because it has found the capital markets shut tight.

Chief Executive Officer William Rouhana said in a press statement that Winstar, which has more than 30,000 business customers, expects to emerge from bankruptcy with significantly less debt, "thereby dramatically lowering our interest payments and providing us with more operating flexibility."

Earlier this month, Winstar fired 2,000, or 43 percent, of its 4,700 workers, and said it would halt network expansion for the year to save money.

Winstar filed for protection from creditors with the U.S. Bankruptcy Court in Wilmington, Del. It listed $4.98 billion of assets, $4.99 billion of debts, and more than 1,000 creditors.

In a Chapter 11 proceeding, secured creditors usually fare best, followed by unsecured creditors. Shareholders often end up with nothing.

Lawsuit
In the lawsuit, Winstar alleged that Lucent, which is expected to report quarterly earnings next Tuesday, breached its obligations under a five-year supply agreement, which analysts said was to provide Winstar with up to $1 billion of financing. On Monday, Lucent declared Winstar in default of that agreement.

"Lucent's breach of its contract with Winstar has forced the company to seek protection under the U.S. Bankruptcy Code," Winstar said, adding that its ability to emerge from bankruptcy doesn't depend on its winning damages from Lucent.

A Lucent spokeswoman, Mary Lou Ambrus, rejected Winstar's claim that Lucent is at fault.

"This lawsuit is absolutely frivolous and without an ounce of merit," she said. "We did not breach any of our obligations to Winstar. The truth is it is in breach of its financial covenants and in payment default with us. We have been monitoring the situation and are appropriately reserved."

Neither Lucent nor Winstar has elaborated on the nature of the other's alleged breach of the vendor agreement.

David Negri, who helps invest $7.5 billion of fixed income for OppenheimerFunds in New York, said many lenders have run out of patience with Winstar.

"There has been so much spent on expansion, and we have been waiting for the revenue streams to catch up," he said. "It needed additional capital, not necessarily today, but at least the visibility of access to capital. Winstar and some others have, in many people's minds, run out of financing options."

On Monday, Winstar failed to make about $75 million of interest payments, and said it hired The Blackstone Group LP, a well-known advisor on corporate restructurings.

Credit rating agency Standard & Poor's on Tuesday and Wednesday cut its ratings for much of Winstar's debt and bank loans to "D," or default.

Credit Suisse, Janus, Microsoft Have Stakes
Credit Suisse First Boston Equity Partners , private equity firm Welsh, Carson, Anderson & Stowe, Microsoft, Janus Capital and Alex Brown Investment Management and affiliates each have at least a 5 percent voting stake in Winstar, the bankruptcy filing said. These companies could stand to lose in any bankruptcy workout.

Bank of New York , Chase Manhattan Bank , CIBC , Citicorp and Credit Suisse First Boston are arranging the $75 million of financing, Winstar said.