PSINet slides into bankruptcy

IDG News Service - Beleaguered Internet service provider PSINet Inc. said today that it's filing for Chapter 11 bankruptcy protection, along with 24 of its U.S. subsidiaries and four of its Canadian operations.

The Ashburn, Va.-based company said that its Asian, European and Latin American operations, as well as its Metamor Worldwide Inc. consulting business, aren't affected by the filings, however, and that all of its subsidiaries will continue to provide customer support.

News of PSINet's bankruptcy filings came as no surprise to observers who have watched the firm's downward-spiraling activities during the past few months after overextending itself in a series of acquisitions.

Shortly after PSINet announced job cuts and a fourth-quarter loss of $3.2 billion in April, it was de-listed from the Nasdaq Stock Market. The service provider hired a new CEO in late April and said it was restructuring, but the steps weren't enough to keep the company from seeking bankruptcy protection.

PSINet's U.S. operations filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York today, while four of its Canadian subsidiaries filed for bankruptcy protection under Canada's Companies' Creditors Arrangement Act.

In Chapter 11 bankruptcy, a company is relieved from the threat of creditors' lawsuits while the court oversees a financial reorganization. PSINet has asked the courts in the U.S. and Canada that it be allowed to continue to provide employees with their normal salaries and benefits but said that it's reviewing its options and is considering a sale of the company.

The company said in a statement that it still holds some $300 million in unrestricted cash, cash equivalents, short-term investments and marketable securities, which it will use to fund operations during its restructuring period.

PSINet President and CEO Harry G. Hobbs said in the statement that the restructuring was necessary because the company's operations weren't flexible enough to respond to changes in the market.

In further news, PSINet announced that it signed a letter of intent with Burnaby, British Columbia-based telecommunications firm Telus Corp. to sell PSINet's Canadian operations and subsidiaries. The proposed sale is subject to regulatory approval and approval under bankruptcy proceedings, the company said. Furthermore, the Internet service provider said that it has entered a definitive stock purchase agreement for the sale of its operations in Panama to REE Panama SA and is considering alternatives for its Latin American operations.

Related stories:

• Cable & Wireless to purchase Digital Island, May 21, 2000



• PSINet to restructure after $1.4 billion third-quarter loss, Nov. 3, 2000



• PSINet buys IT service firm, March 22, 2000