PSINet acts quickly as stock falls to 19 cents

Fate is in doubt for firm with name on Ravens stadium

March 20, 2001|By Andrew Ratner | Andrew Ratner,SUN STAFF

If only PSINet Inc. could find a team willing to pay to put its name on the company's building.

With its stock price having fallen to below 20 cents almost exactly one year after it reached $50, PSINet announced a series of remedies yesterday, though the Internet services company acknowledged that they might be too late to save it.

PSINet's shares closed at 19 cents on the Nasdaq stock market - after dipping as low as 13 cents - down about 80 percent on the day. The stock has plummeted more than 99 percent since last March 20.

PSINet, based in Ashburn, Va., announced that Dresdner Kleinwort Wasserstein, an investment bank, will help it restructure its debt and credit obligations.

PSINet also announced that it is selling controlling interest in a European company for about $53 million, its third asset sale in a week.

In addition, the company announced management changes. Harry G. Hobbs, executive vice president, was named president and chief operating officer, replacing Harold Wills, who resigned as president in November.

And James F. Cragg resigned yesterday as vice president and divisional president responsible for North American operations.

But PSINet officials said the moves might not be enough to salvage any shareholder value as they try to sell or merge the company.

"There is no assurance that the company will be successful in restructuring its obligations or completing one of these strategic alternatives," the company said in a statement.

"Even if PSINet is successful in one or both of these efforts, it is likely that the common stock of the company will have no value, and the indebtedness of the company will be worth significantly less than face value."

Baltimore residents have been watching PSINet since the company paid to have the city's new football stadium named after it in 1999. The stadium naming rights were part of PSINet's 20-year, $105 million deal with the Baltimore Ravens.

Ravens officials said yesterday that they consider the company a partner and haven't discussed the possibility of a new name in the stadium's future.

PSINet reported $3.6 billion in debt as of Sept. 30, the end of its third quarter, the latest numbers available. The company plans to report fourth-quarter results this month, with its fiscal year 2000 report due to the Securities and Exchange Commission in two weeks.

As of March 2, the company said it had about $300 million in cash and liquid assets.

PSINet's threatened default prompted Moody's Investors Service, the credit rating agency, last week to cut the company's senior unsecured rating three notches to "Ca," its second-lowest rating, from "Caa1." Another agency, Standard & Poor's, rates the debt "CCC," slightly higher than Moody's.

PSINet's "distressed" $1.05 billion in 11 percent notes maturing in August 2009 were bid yesterday at 15 cents on the dollar, up 1 cent, with a yield to maturity of about 74.6 percent.

Analysts believe that PSINet will be forced to negotiate a fire sale with bondholders. Shareholders are expected to receive nothing.

"This process did not happen overnight. All the warning signs were in place by August," said F. Drake Johnstone, an analyst with Davenport & Co. in New York, who downgraded his recommendation from "hold" to "sell" in September.

Analysts said PSINet was hurt by the downturn in the economy, tightened capital lending and shaken confidence in Internet stocks, but the company also made serious miscalculations.

While the fast-growing company concentrated in the "narrow band" Internet, it didn't own the fiber-optics equipment to take advantage of the potential in high-speed "broadband" Internet access, Johnstone said.

PSINet also purchased companies at inflated prices. For example, it bought Metamor Worldwide a year ago for $1.65 billion - a purchase it had to write off months later. William L. Schrader, PSINet chairman and chief executive officer, said last fall that the acquisition came "in retrospect, at exactly the wrong time."

PSINet also announced the sale of its controlling interest in the Decan Groupe, a technology and information services company, to Getronics International NV, Europe's third-largest computer services company, for about $52.5 million. The transaction is expected to be completed in a few weeks, the company said.

The deal followed news last week that PSINet was selling a credit-card transaction business for $300 million and a systems maintenance company for an undisclosed price.

"Other analysts who were here loved it at one time, but I took it over and got sick," Gregory E. Gieber of A. G. Edwards in St. Louis, said of PSINet. "They're a hallmark of the Internet era, where a high percentage of start-ups were put on a philosophy of, `Don't worry about tomorrow.'"

Reuters contributed to this article.

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