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Once considered a can’t-miss company for the new era of high-speed communications, Global Crossing Ltd. has gone under. Incorporated in Bermuda and operated out of Beverly Hills, Calif., Global Crossing was among the very first telecommunications providers to begin laying underseas fiber-optic cables between most of the continents. As billions were raised and billions more spent in the late 1990s, founder and chairman Gary Winnick, the former Drexel Burnham Lambert junk-bond trader, achieved the social status and millions in personal wealth accorded to celebrity corporate executives. But an overly aggressive building plan and a series of questionable acquisitions and personnel decisions made worse by the recession proved too much for Global Crossing. The company filed a Chapter 11 petition Monday with the U.S. Bankruptcy Court for the Southern District of New York, the fourth-largest insolvency in U.S. history. Global Crossing said it planned to file a reorganization plan with the court by August. In a filing, the company listed $22.4 billion in assets and $12.4 billion in liabilities. Global Crossing’s auditor of its most recent proxy filing was Andersen, which is under congressional investigation regarding the collapse of the energy trader Enron Corp. Andersen billed Global Crossing $2.26 million for auditing services in 2000. The auditor also billed the broadband provider $11.96 million for other services such as business and accounting consultation as well as tax planning. In hopes of eventually escaping bankruptcy, Global Crossing obtained a commitment for a $750 million cash investment from Hong Kong’s Hutchison Whampoa Ltd. and Singapore Technologies Telemedia Pte. Ltd. Both are partners in two of Global Crossing’s Asian affiliates. Unclear is just how much equity both companies would acquire in Global Crossing as it moves through bankruptcy. A company spokeswoman would only say that Hutchison and Singapore Technologies would obtain a “joint majority stake” in a reorganized Global Crossing while the rest of the company’s creditors would split the remainder. “It appears that some percentage of the $750 million will go to creditors and some percentage will go to fund the company going forward,” said Charles Gassenheimer, a high-yield debt analyst at Credit Suisse First Boston. “They’re not going to say more because that would show how much they plan to pay for the various debts. Now starts the negotiation.” One thing is certain: Common and preferred shareholders would be wiped out, if they haven’t been already. Global Crossing’s stock, which fell 41 percent Monday to close at 30 cents a share, has dropped about 96 percent over the past year. Winnick has cashed in on $633 million in stock since the company went public in August 1998. Though the filing will prevent the company’s lenders from forcing Global Crossing to make a $45 million interest payment by Feb. 1 related to its $7.8 billion in debt, it failed to clear up many issues of ownership and debt repayment that are likely to complicate, if not stymie, an attempt to emerge from bankruptcy. While banks usually take priority over bondholders’ claims to a company’s assets, Global Crossing’s loans were structured so the banks could find themselves subordinate to the company’s bondholders. Just where Hutchison and Singapore Technologies’ involvement would leave Global Crossing’s bank lenders, led by J.P. Morgan Chase & Co. and Citibank, is also unsettled. In September, Global Crossing drew down the last of a $2.25 billion loan the banks made to the company in 1997, when it appeared that public demand for high-speed, fiber-optic communications would be insatiable. Having lost $1.9 billion on revenues of $2.4 billion in the first none months of 1997, Global Crossing technically was in violation of its covenant default but its bank lenders agreed to look the other way until Feb. 13. Rather than seek further postponements of its pending interest payments, Global Crossing secured financial commitments from Hutchison and Singapore Technologies. Seen in the context of the past year’s string of telecom bankruptcies, Global Crossing’s decision to seek Chapter 11 protection could be portrayed as just the misfortune of another overly eager broadband builder. But Winnick may have aggravated the company’s problems by operating a revolving door of chief executives — five in the past four years — that led to competing business plans and staff allegiances. In addition, Winnick, 53, spent heavily trying to fill his underused broadband cables with traffic. In 2000, he paid $1.65 billion for the U.K.’s Racal Telecommunications Network and $1.3 billion for IPC Communication Services Inc. Also in 2000, Winnick agreed to take $6.5 billion in stock in Exodus Communications in exchange for its Web-hosting unit GlobalCenter, acquired in the company’s purchase of Frontier Communications for $9.8 billion in 1999. Exodus filed for bankruptcy in September. Copyright (c)2002 TDD, LLC. All rights reserved.

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