Metromedia Fiber Avoids Chapter 11

MFN said it has completed the integration of its AboveNet and SiteSmith acquisitions and is now a single, unified company doing business under the MFN brand.

by Bob Woods of OpticallyNetworked.com [October 4, 2001]

Metromedia Fiber Network Inc. (MFN) (NASDAQ:MFNX), which has been lining up a lot of cash lately to keep it out of bankruptcy court, said it has completed its $611 million in financing. The completion should keep the company out of bankruptcy court.

The package consists of:

• a $150 million note purchase facility led by Citicorp, USA
• $230 million in convertible debt financing, of which $180 million is being purchased by affiliates of the Company and $50 million is being purchased by a subsidiary of Verizon Communications
• $231 million in vendor financing.

MFN also said it completed agreements with its other vendors to modify payments it owes them.

"With this funding, we will be able to continue to grow our company and complete our business plan,'' said Stephen Garofalo, chairman of MFN, in a statement. "We believe our metropolitan fiber optic network provides the most comprehensive offering of an end-to-end optical solution in the market today."

Still down, but not out
Even with the newfound cash, MFN officials said they were revising down its revenue guidance. Blaming "continued general economic weakness," MFN said the revenue range for its third quarter would be in the $91 million to $93 million range, down from the previous guidance of $107 million to $115 million.

In the company's fourth quarter, MFN said it expected to bring in between $100 million and $103 million in revenue, down from the previous estimate of $127 million to $137 million.

MFN's third quarter EBITDA (earnings before interest, taxes, depreciation, and amortization) would show a loss of $31 million to $25 million -- the same as its previous guidance. But the company expects its fourth quarter EBITDA to improve to a loss of $3 million to $9 million, from a previously stated expected loss of $19 million to $22 million.

As a result of expense reductions and cost control, the company also said it would become EBITDA positive early in 2002 -- one year ahead of previous guidance.

Management shuffle
Additionally, MFN announced senior management changes. The company's new executive management team is led by President and Chief Operating Officer Mark Spagnolo, who will report to Nick Tanzi. Tanzi will take over as chief executive officer reporting to the company's board. Stephen Garofalo, the founder of MFN, will continue in the position of MFN's chairman.

Also, MFN said it has completed the integration of its AboveNet and SiteSmith acquisitions and is now a single, unified company doing business under the MFN brand.

Flirting with bankruptcy
MFN said in early September that it would face bankruptcy if it did not sign the dotted line on a number of financing deals, many of which depended on other pacts closing in a house-of-cards scenario.

On Sept. 20, MFN executives announced they had secured $231 million in conditional financing from its vendors to keep Chapter 11 proceedings at bay. At the time, Metromedia said that financing pact was subject to the closing of a $150 million note facility led by Citigroup Inc.'s Citicorp USA and the closing of $230 million of convertible notes financing, for which it has commitments of $180 million from company affiliates and $50 million from an investor.

Then on Sept. 24, MFN said it received an extension on a $50 million convertible debt commitment. That extension ended on Monday. The commitment letter had been set to expire on Sept. 21.

All of this began in late August, when Metromedia got $235 million in conditional financing from its vendors, provided it could close its $150 million loan deal with Citicorp made on Aug. 20 and secure another $50 million in financing.

The Verizon subsidiary then got another $150 million note from Citicorp, conditional on wrapping up its August deal with vendors.

That deal was conditional on Metromedia being able to pay off $235 million in vendor financing, even though officials at the time said they could not "provide any assurances that it will be able to consummate any of the financings it is pursuing."

It should be noted that the entire time Metromedia officials were threatening to file bankruptcy proceedings if they couldn't meet their financial obligations, a situation nobody wants. Investors know they will get a pittance, if anything, after the fiber company's creditors take back pennies on the dollar of their own investment. Metromedia's vendors, meantime, know they will lose out on any future purchases by the fiber company if it goes under.

The company's made inroads, to be sure, reducing its vendor debts by $3 million, from $234 million to $231 million, in less than a month.

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