Less than six months after filing for Chapter 11, USinternetworking Inc. has emerged from bankruptcy protection and plans to announce today that it is merging with a North Carolina company.
Upon completion of its restructuring plan, USinternetworking, an Annapolis technology company, received a cash infusion of $81.25 million from Boston-based Bain Capital Partners LLC.
"We've gotten through all the issues; we are coming out as the industry leader," said Andrew A. Stern, USinternetworking's chief executive officer. "It is great news for the industry."
However, Stern said, the shareholders' interest in the company was wiped out in the restructuring.
Lindsee Granfield, an attorney representing the official creditors committee from Cleary, Gottlieb, Steen & Hamilton of New York, said a few secured creditors are getting back 100 cents on the dollar.
She also said that, according to debtors' estimates, some unsecured creditors are getting back more than 85 cents on the dollar, while bondholders are getting about 13 cents on the dollar.
Granfield said creditors believed that they were getting as much value as there is to get, given the status of the company.
"For the most part, the creditors are satisfied that the Bain transaction was the best possible use and value for the assets of USinternetworking as they stand now," she said.
Bankruptcy code does not allow shareholders to receive distributions unless creditors are paid, Granfield said.
"It's sort of buyer beware," said Amy Mizoras of IDC, a technology research firm in Framingham, Mass.
Mizoras believes that USinternetworking will now be focused on keeping enough cash in the bank to run the business and Bain Capital will help it do that.
"In order to get the necessary funding that they would need to stay afloat, they needed to do this restructuring," Mizoras said. "So they sort of had their feet to the fire to get this done."
USinternetworking rents software to businesses over the Internet.
The company had about $262.7 million of debt going into bankruptcy and emerged with liabilities totaling $121.1 million, according to the company's adjusted balance sheet.
When the company announced its restructuring in January, it said that as part of the plan, Bain would invest $81 million, plus another $25 million when USinternetworking met "certain business milestones."
USinternetworking also plans to announce today that it is merging with Interpath Communications Inc., a Research Triangle Park, N.C.-based company in which Bain Capital owns a controlling interest.
The new company will be privately held with its headquarters in Annapolis and Stern as its chairman and chief executive, he said.
The new management team will come from both USinternetworking and Interpath.
Interpath has about 180 workers, and USinternetworking has about 520. Stern said combining the companies will lead to some layoffs.
"We're going to work very hard to make sure that we end up with the best of both companies, and there's going to be some redundancy," he said, adding that the number of cutbacks will be small.
Stern also said the new company is in a very strong financial situation.
Chris Ambrose, a research director for the Gartner Group Inc., said the merger makes sense.
Interpath is in the same field as USinternetworking. Ambrose said combining the businesses allows them to operate more efficiently and leverage some of the technology.
"I think it's a good message to the market and I think it positions [USinternetworking] pretty strongly back in the market as well," he said.