USinternetworking Inc. filed for Chapter 11 bankruptcy protection yesterday as part of a restructuring plan supported by its creditors.
The cash-strapped Annapolis software company also said it secured up to $106 million from Bain Capital Partners LLC, an investment firm that eventually will own the company.
"Bain is very excited about investing in the future of our business, but not interested in paying for the problems of the past," said Andrew A. Stern, USinternetworking's chief executive officer.
Nasdaq halted trading of USinternetworking's stock before the market opened yesterday, after the company's announcement. Shares were 22 cents, but had closed as high as $66.67 in March 2000.
Through the prenegotiated filing in U.S. Bankruptcy Court in Baltimore, the company said it would get rid of more than $120 million of its debt.
The company's debt - listed at $290.9 million - includes $125 million in convertible bonds and $65 million in capital leases, plus mortgages and other debt, Stern said.
Assets were listed at $381.9 million.
USinternetworking rents software to businesses over the Internet.
The company said the restructuring is not expected to affect its customers or employees. It will be carried out while the company continues "business as usual," Stern said. USinternetworking expects to be finished with the court proceedings in the spring.
As part of the restructuring plan, Boston-based Bain will invest $81 million in USinternetworking, plus another $25 million when the company meets "certain business milestones," USinternetworking said.
When the investment is completed, Bain will own USinternetworking.
The investment is expected to fund the company until the business creates enough cash to finance its operations.
Founded in 1998, USinternetworking has yet to post a net profit.
For the third quarter of 2001, the company reported a net loss of $37.6 million, or 27 cents per share, on revenue of $31.7 million.
Larry Berlin, an equity analyst who covers the company for First Analysis Securities in Chicago, said USinternetworking's creditors are probably better off with this deal than without it because they will likely get some of the cash owed them.
USinternetworking's workers are also likely to be better off with the deal, Berlin said.
The company, which now has 580 employees, laid off more than 500 workers last year. With the deal, Berlin said the bulk of USinternetworking's employees "have a better chance at keeping their jobs."
Stern said the company does not anticipate any large layoffs to make the restructuring plan work.
But, he added, "we will always make adjustments as any business does."
Berlin indicated that without the deal announced yesterday, the company probably would not have survived.
"You wouldn't do this if you were going to survive otherwise," Berlin said.
Still, Andrew Balson, managing director at Bain Capital Partners, was optimistic about the local company.
"We have been extremely impressed by USi's talented management team and its work to create a restructuring plan to restore financial stability and create an appropriate capital structure to fund the company's growth," Balson said in a statement.
"With the support USi has obtained from creditors," Balson said, "Chapter 11 should provide the quickest and most reliable route to implement the restructuring."