Posted 07/2000
GST's Fate Should Get Clearer
By Ken Branson
The fate of GST Telecommunications Inc. (www.gstcorp.com), unclear for months, should start to come into focus this month. Creditors and potential bidders for all or part of GST's assets will have made their claims and offers known to a federal bankruptcy judge in Wilmington, Del., and the judge will then decide who gets what and when.
All this bears a certain resemblance to the reading of a will, except in this case the loved one is not departed, but still providing dial tone, private line, local and long-distance service, Internet access and web hosting. Its website is up and full of explanatory material about bankruptcy in general and GST's filing in particular. Interim CEO Thomas Malone--who took the helm in January when his predecessor, Joseph Basile, resigned--has been traveling a lot, trying to reassure customers and retain employees.
On May 17, GST filed for protection from its creditors--to whom it owes about $1.2 billion--under Chapter 11 of the Bankruptcy Act. Chapter 11's purpose is to keep a company in business while reorganizing its debts, and many an illustrious corporate name has passed into and out of Chapter 11 and on to greater glory. In those cases, however, the bankrupt company was able to keep something of its core value. Continental Airlines Inc. (www.continental.com), for example, kept its airplanes.
GST, however, has signed at least two documents that could lead to the sale of its main asset--its network. On May 17, GST announced it had signed a letter of intent to sell "substantially all" of its assets to Time Warner Telecom Inc. (www.twtelecom.com) for $450 million, including its Hawaiian operations.
However, MBN Communications Inc. (www.mauibiz.net) maintains it has a prior claim on the Hawaiian operation because it signed a contract on April 27 to purchase that operation for $76 million. GST confirms that it signed a contract with MBN on April 27, but says the contract stipulated that a deposit be made, and none was. MBN's CFO, Tim Georges, says, "The deposit didn't come along for several reasons, and you can surmise what those were."
Time Warner Telecom spokespeople decline to elaborate on their offer. "This entire matter is in the bankruptcy courts," a spokesman says. "We ... want an expedited resolution of this matter."
The letter of intent between GST and Time Warner Telecom lays Time Warner Telecom's cards on the table and keeps GST from shopping the company around before the bankruptcy court can receive formal bids. But a letter of intent is not, by itself, a bid. The formal bidding was open in early June and is now about to close. The judge will make his decision based on what the law requires and in the interest of the creditors.
But not all creditors are created equal. Of GST's $1.2 billion in debt, sources close to the situation say about half is "senior secured" debt. That means the holders of such debt are in line before people holding more junior debt.
