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While Global Crossing Ltd. has developed a road map out of bankruptcy, analysts and industry observers say the larger challenge will be coaxing long-term profits out of a market that places limited value on the company’s prize asset, its global fiber network. Global Crossing aims for court approval of its reorganization plan by December, clearing the way for an early-2003 exit from Chapter 11. Hutchison Whampoa Ltd. and Singapore Technologies Telemedia Pte will provide $250 million in exit financing in return for a 61.5 percent stake in the global carrier. If creditors, the court and regulators approve the plan, which Global Crossing filed late Monday, the bankrupt telecom would have $200 million in long-term debt and a $150 million working capital facility when it emerges, down from $12.4 billion in debt when it filed for Chapter 11 protection in January. The company forecasts net income of $174 million in its first year out of bankruptcy, on total revenues of more than $3 billion. By 2006, it expects revenues to top $5.5 billion, producing a profit of $809 million. While the reduced debt will certainly make the company more viable, some observers said it is unclear if the projected profits will materialize in the current market. “The issues facing it in the long term aren’t driven by the reorganization plan but the fundamental challenges the company and the industry face,” said Duncan Yin, a distressed-debt telecommunications analyst at UBS Warburg. “You still have very severe price competition that’s going to make generating cash flow a real problem.” Global Crossing operates the world’s largest fiber-optic network, spanning 100,000 miles from the United States to South America, Europe and Asia. Since filing for bankruptcy protection, the company has realigned its business plan to require less capital expenditure. It is leaning away from a buildout of its network in metro areas, and is focusing on improving its business with existing customers. Global Crossing’s bank lenders, led by J.P. Morgan, are the only creditors that will receive cash under the company’s reorganization plan. The banks had claims of $2.25 billion and would get about $300 million in cash, $175 million in new senior secured notes and 6 percent of the common stock under the plan. Investors owning Global Crossing holding company notes had claims of $3.9 billion and would get $18.9 million in notes and about 24.6 percent of the common stock if the plan is approved. Bondholders of the Global Crossing North America unit, formerly Frontier Corp., had claims of $640 million, and would get $3.2 million in notes and 4.1 percent of the common stock. That leaves the company’s suppliers and vendors with $2.9 million of notes and 3.8 percent of the common stock. “Clearly the banks were in the driver’s seat during the negotiations,” said Chester Salomon, founding partner of the New York firm Salomon Green & Ostrow. One source said the bank debt had been trading in the range of 15 cents to 16 cents on the dollar — slightly more than the cash value of their recovery — suggesting that for the time being the market is placing little value on the bonds and stock. Earlier in the year, the company’s creditors spurned the Hutchison-ST Telemedia $750 million bid for a 79 percent stake, saying it undervalued the company’s assets. But as the market for telecommunications assets continued to deteriorate, so did the size of the bids for the company. Global Crossing postponed the final deadline for offers several times before accepting the lower bid from Hutchison and ST Telemedia. All of the creditors have given preliminary consent to the terms of the new buyout, and the company expects to win their approval for the deal in December. Analysts and market observers said that the creditors would likely sign off on the deal, though the reduced price Hutchison and ST Telemedia are paying could still cause hitches in the negotiations. “I don’t think anybody is extremely happy with the situation,” said one source. Copyright �2002 TDD, LLC. All rights reserved.

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