PSINet set to take bankruptcy route

Ravens don't want stadium name to go in sale of assets

Trading in shares halted

`The fat lady is warming up her lungs,' analyst says

April 04, 2001|By Andrew Ratner | Andrew Ratner,SUN STAFF

PSINet Inc., the Northern Virginia Internet company for which Baltimore's football stadium is named, announced yesterday that it will likely be forced to file for bankruptcy while it sells assets to pay bondholders.

The world champion Ravens, meanwhile, are trying to ensure that the name of the stadium isn't one of those assets.

The Nasdaq stock market halted trading of PSINet's stock at 9:04 a.m., seeking additional information from the company, said Wayne Lee, a Nasdaq spokesman. The company is in jeopardy of being delisted by the Nasdaq if its stock closes under $1 for 30 consecutive trading days. Yesterday, PSINet's stock was frozen at 19 cents, its 16th-straight trading day below $1.

A spokesman at PSINet headquarters in Ashburn, Va., could not say when the company might provide Nasdaq with the information it requested. The company and Nasdaq would not describe the information being sought.

Investment analysts predicted that the company, which links corporate users to the Internet and builds and maintains company Web sites worldwide, would be forced to liquidate its assets under Chapter 11 of the U.S. Bankruptcy Code.

The company said it had cash and liquid assets of about $254 million through Friday - barely enough to last the current quarter at the previous rate the company was burning through cash.

The company was undone, analysts said, by the bleak climate for technology investing and by self-inflicted wounds caused by acquiring companies at too high a price at the wrong time.

"The fat lady is warming up her lungs," said analyst David Takata, who tracks the company for Gerard Klauer Mattison in Los Angeles. "And the bondholders will have to take a haircut."

PSINet entered a 20-year, $105.5 million agreement with the Ravens in January 1999 that included naming the team's purple-seated playing facility at the downtown Camden Yards complex "PSINet Stadium." The Ravens received the right to name the new stadium from the Maryland Stadium Authority in 1997.

At the time, Robert Leahy, then a senior vice president for corporate marketing and communications for PSINet, said the agreement allowed for at least one name change during the 20-year pact between the company and the Ravens.

However, David Modell, president of the Baltimore Ravens, said last week through a spokesman that PSINet does not retain the right to resell the stadium name.

Sources said Modell met recently with William L. Schrader, PSINet's founder, chairman and chief executive officer, after the company's sale of more than $300 million worth of properties to whittle its debt, reported in September as totaling $3.6 billion. According to federal securities documents last fall, the company paid $11.8 million to the Ravens and was to pay another $93.5 million through January 2019 under the 20-year agreement.

Neither the Ravens or PSINet would elaborate, saying only that Modell and Schrader meet periodically to review their partnership.

"PSINet is a proud partner of David Modell and the Ravens, and we look forward to continuing our relationship for the entire length of our 20-year agreement," PSINet spokesman Eric McErlain said last week.

Although the naming issue has been of interest to Baltimore football fans and involves a $223 million publicly funded stadium, the Ravens and PSINet have consistently described it as a private business matter.

Team officials privately empathize with the company, whose recent history is a mirror image of the Ravens. When Art Modell was deeply in debt and an object of some criticism after moving his team from Cleveland to Baltimore, the investment from then-high-flying PSINet was a boost for the Ravens.

Two years later, the Ravens are in a more enviable position, having won the Super Bowl in January, while the company is now reeling.

Warning to investors

PSINet warned investors yesterday that it "cannot provide any assurance that it will be successful in restructuring its obligations. ... These efforts are likely to involve the company's reorganization under the federal bankruptcy code. Even if the company were successful in any of these efforts, it is likely that the company's common stock will have no value, and that the company's indebtedness will be worth significantly less than face value."

PSINet alerted the Securities and Exchange Commission Monday that it would not meet yesterday's deadline for filing its annual financial statement. The company does plan to file within the next two weeks, it said.

The company also said it expected to receive a negative audit opinion from PricewaterhouseCoopers LLP.

The company hired investment banking firm Goldman Sachs & Co. last fall after it realized that it was in trouble. Last month, when the outlook worsened, it hired Dresdner Kleinwort Wasserstein to investigate restructuring options and negotiate with bondholders. Holders of the company's shares aren't secured creditors and aren't expected to get anything if the company goes out of business.

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