Global Crossing files plan to emerge from Chapter 11

Winnick reportedly wouldn't be protected

September 17, 2002|By BLOOMBERG NEWS

NEW YORK - Global Crossing Ltd. filed a plan yesterday to emerge from bankruptcy based on the sale of a majority stake in the fiber-optic network operator for $250 million.

The Hamilton, Bermuda-based company filed for Chapter 11 protection in January after amassing $12.4 billion in debt building a 100,000-mile fiber-optic network in 27 countries. The company listed $22.4 billion in assets in its bankruptcy filing.

Its recovery proposal is based on the sale of a 61.5 percent stake to Hutchison Whampoa Ltd. and Singapore Technologies Telemedia PTE for $250 million. Under the buyout offer, creditors would divide about $300 million in cash, $200 million in notes and the remaining 38.5 percent of Global Crossing's shares.

Shareholders would get nothing.

Global Crossing had to file the reorganization plan by yesterday or risk having to pay the investors a $30 million penalty. A U.S. bankruptcy judge must approve the plan by Jan. 6 for it to take effect.

U.S. Bankruptcy Judge Robert Gerber in Manhattan is scheduled to review the plan on Oct. 21.

The plan would leave Chairman Gary Winnick vulnerable to lawsuits by creditors owed more than $12 billion, people familiar with the matter said.

The reorganization would make it easier for creditors to challenge salary, bonuses and millions of dollars in consulting fees that the world's largest fiber-optic network operator paid founder Winnick and other insiders in the months before the company's Chapter 11 filing in January, the sources said.

"Creditors have every right to review the transactions between Mr. Winnick and Global Crossing and recover for any wrongdoing he may have engaged in or any payments he wrongly took," said Harvard Law School professor Elizabeth Warren. A congressional committee also has subpoenaed Winnick, ranked by Forbes magazine as the 277th richest American last year.

Global Crossing filed for bankruptcy protection after amassing $12.4 billion in debt building a 100,000-mile fiber-optic network in 27 countries. The Securities and Exchange Commission and Justice Department are investigating whether Global Crossing misreported costs and revenue as did its rivals WorldCom Inc. and Qwest Communications International Ltd.

Chapter 11 reorganization plans typically give executives of bankrupt companies immunity from creditors' lawsuits to encourage them to remain on the job. While Chief Executive Officer John Legere will receive that protection under the reorganization plan, Winnick won't be working for Global Crossing anymore and may be exposed to lawsuits, sources said.

In addition to pursuing more than $2 million in salary, bonus and other payments to Winnick, creditors plan to challenge consulting fees that Global Crossing paid to his Pacific Capital Group investment firm, the sources said. Global Crossing, which agreed in 1998 to pay Pacific Capital 2 percent of annual revenue, later paid $135 million in stock to cancel the agreement, Forbes magazine reported.

Winnick received a $1.03 million bonus in March 2001, a salary of more than $833,000 for the year, and about $200,000 in expense reimbursements and other payouts, court papers say.

Creditors can recoup debts by challenging payouts in the months before a company seeks court protection. Creditor lawsuits also may challenge payments to Winnick on fraud or mismanagement grounds.

Bank lenders and bondholders have agreed to evenly split the proceeds of lawsuits filed against Winnick and other former insiders, and the plan establishes a trust for creditors' benefit that will pursue the lawsuits, sources said.

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