Metromedia replaces CEO, CFO

Network operator defaults again in slide toward bankruptcy

Shares once $51.88, now 9 cents

April 02, 2002|By BLOOMBERG NEWS

WHITE PLAINS, N.Y. - Metromedia Fiber Network Inc. replaced its chief executive and chief financial officers yesterday, after defaulting on $8.1 million owed Nortel Networks Corp. as the network operator slides toward bankruptcy.

The Nortel payment was due Friday on $231 million of term notes, Metromedia said in a statement. The company missed a $30 million payment to Verizon Communications Inc. two weeks ago.

The company, controlled by billionaire John Kluge, may seek bankruptcy protection if it can't renegotiate its debt, which was $3.3 billion as of Feb. 28. The shares have tumbled from a high of $51.88 in March 2000 to below 10 cents amid a glut of network capacity.

Metromedia's missed payment triggered default provisions on $343 million in debt to Verizon, Bechtel Corp. and Citicorp USA that provided financing to build its networks. Equipment providers backed the purchases of startup telephone and Internet companies in exchange for a share of growth.

The company, which is selling assets to reduce costs after customers cut spending on data services, replaced Chief Executive Officer and President Mark Spagnolo with former MCI Communications Corp. executive John Gerdelman, and named former Salomon Smith Barney investment banker Robert Doherty as executive vice president, finance and administration, replacing CFO Randall Lay.

Spagnolo and Lay had held their jobs for less than six months. Salomon Smith Barney and its predecessor, Salomon Brothers Inc., led stock offerings for Metromedia in 1997 and 1999, Bloomberg data showed. The firm advised Metromedia on the 2000 purchase of closely held SiteSmith Inc., run by Spagnolo, and on the 1999 purchase of AboveNet Communications Inc.

Metromedia also delayed filing its annual report Form 10-K for last year with the U.S. Securities and Exchange Commission, but anticipates filing it by April 16.

The company said failing to make the Nortel payment resulted in defaults on $150 million in floating-rate guaranteed term notes issued to holders led by Citicorp USA, $62.5 million in senior subordinated convertible notes issued to Bechtel Corp., $50 million in senior secured convertible notes issued to Verizon, $180 million in senior convertible notes and certain promissory notes issued to vendors.

Metromedia leases space on its fiber-optic network to let businesses send data at high speeds within cities. Prices for such services have fallen by more than half in the last two years, according to researcher TeleGeography Inc.

Metromedia's shares fell a penny yesterday to 9 cents in trading of 71 million, making them the second-most-active U.S. stock.

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