PSINet Reduces Founder's Role As Default Looms

William Schrader is replaced as CEO and Chairman as PSINet realigns the executive staff. A Restructuring Committee is created to manage change at the company, but it may be about to default on equipment loans.

by Roy Mark of internetnews.com [May 1, 2001]

Facing an uncertain future that could involve a bankruptcy proceeding, PSINet Inc., (OTC:PSIX) is shaking up its management team, including appointing Harry G. Hobbs to replace William L. Schrader as chief executive officer of the Ashburn, Va.-based company. Hobbs will also take a seat on the board of directors.

In addition, Schrader has been replaced as chairman of the board by Ian Sharp. Schrader, the troubled company's founder, will remain as a member of the board and serve the company in an advisory capacity.

PSINet also announced that its board of directors has formed a Restructuring Committee in order to facilitate the management of the company's restructuring efforts. The Committee will be chaired by Ralph J. Swett and will include Hobbs and Dr. William H. Baumer.

Lawrence E. Hyatt, PSINet's executive vice president and chief financial officer, has assumed the additional responsibility of chief restructuring officer, working closely with bondholders and other creditors in addressing options to rationalize the balance sheet.

"Bill Schrader is one of the true pioneers of the commercial Internet. His founding vision led PSINet to assemble valuable assets, including one of the largest and most advanced global networks and 16 state-of-the-art hosting centers," Sharp said. "Given the changed circumstances within the marketplace and the company, we need to focus the company's efforts on preserving and enhancing this value."

In recent weeks, PSINet announced its cash, cash equivalents, short-term investments and marketable securities are not expected to be sufficient to meet the company's anticipated cash needs. The possible sale of all or a portion of the company is being considered.

The problem is immediate.

PSINet Inc. will default on a $20.1 million interest payment on its 11.5 percent Senior Notes due today, and will not make its May equipment lease and note payments, which total $16.6 million.

The company also faces interest payments of $31.5 million and 7.9 million euros its 10.5 percent Senior Notes on June 1.

"The actions announced today will help preserve cash while we pursue restructuring alternatives that assure the long-term viability of our assets and businesses, and address the requirements of our creditors," said Hobbs.

—End