Globix to Restructure Debt

With plans to seek bankruptcy protection in February, Globix secures a deal with bondholders to reduce its debt burden by approximately $480 million.

by @NY Staff [January 15, 2002]

Webhosting firm Globix Corp., struggling to cope with to lease terminations, severance packages, bad debts, and troubles with suppliers, has reached a deal on financial restructuring designed to ensure the financial stability of the Company.

Under terms of the prepackaged bankruptcy deal, Globix bondholders (who own more than 51 percent of the company's outstanding $600 million of 12-1/2 percent senior notes) will exchange those senior notes for $120 million and a substantial equity position.

The notes, due in 2008, carry an interest of 11 percent and will reduce annual interest payments by about $75 million. Globix said its preferred shareholders have also agreed to this plan.

Globix, which plans to file for bankruptcy protection sometime in February and emerge from the process "relatively quickly," said there would be no cash interest payable on the new senior secured notes for up to four years.

"Additionally, the bondholders will hold 85 percent of the company's common stock. Current holders of the company's Series A preferred will hold 14 percent of the common stock, and the remaining 1 percent will be allocated to the current common shareholders," according to a Globix statement.

Globix, which plans to exclude its U.K and European operations from the bankruptcy petition, said customers, employees and trade creditors would not be affected by the restructuring. It has been scaling back its data hosting operations at sites around the globe, and took an $18 million restructuring charge during the fourth quarter last year, which included the termination costs of leases, write-off of leasehold improvements, excess equipment, and employee termination costs.

For the fiscal fourth quarter which ended Sept. 30th, Globix's net loss was $73.6 million ($1.89 per share), more than double its net loss of $30.1 million (81 cents per share) during last year's fourth quarter. Revenues were $25 million, compared to $25.9 million in the prior year quarter. For the fiscal 2001 year, Globix said revenues were $104.2 million compared to $81.3 million in the prior fiscal year. Globix also recorded a $3.5 million write-off of network assets "impaired by the financial viability of a supplier," and took a $4 million charge to reflect an increase in bad debts.

Peter Herzig, chief executive officer, said, "The events of September 11, coupled with turbulent market and economic conditions and the dot-com fall out, have affected all participants in our market. We are seeking to greatly reduce our debt burden so that we will have the necessary liquidity to focus on the competitive advantage Globix enjoys as a premium provider of complex hosting services."

The company closed out its fiscal year with $111.5 million in cash, which the chief financial officer said was ahead of expectations as the company continues to focus on cost reductions and conserving working capital.

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