Tuesday, January 14, 2003

Broadwing may shed broadband

Broadband operation losing money; payments due

By Mike Boyer
The Cincinnati Enquirer

The parent of Cincinnati Bell said Monday that it is exploring the possible sale of its money-losing broadband business, acquired in 1999 to expand beyond its local telephone operations.

Broadwing Inc. declined to say who or how many inquiries it has received about the Austin, Texas-based business, which operates an 18,000-mile fiber-optic network.

But CEO Kevin Mooney said the inquiries included both established industry players and new financial entrants. In an interview, he declined to assess the odds of completing a sale but said he was pleased with the level of interest.

"We could be in a position to make a decision" by the end of March, he said.

Broadwing, which is being advised by Lehman Brothers and Banc of America Securities, said that if a sale doesn't materialize, it will continue with cost-cutting efforts aimed at stemming cash burn at the broadband business. In October, Broadwing said it was cutting 500 jobs in the broadband unit as part of that effort.

In 2001, Broadwing Communications, the broadband business, generated revenues of $1.2 billion but consumed more than $500 million in cash.

Broadwing also said it has secured $350 million in financing arranged by Goldman, Sachs & Co., up from $200 million committed to the company last month.

Broadwing said the new financing will pay interest of 12 percent and include warrants to buy up to 17.5 million shares of its common stock. Broadwing will use the money to reduce debt. The funds will serve as a sort of down payment to banks on debt coming due this year and next year. The new funding is contingent on completing negotiations with a syndicate of about 100 banks to extend the maturities on about $1 billion in debt coming due next year into late 2005 and 2006, Mr. Mooney said.

By that time, Mr. Mooney said, Broadwing expects to be generating about $200 million in cash free of other obligations to reduce its debt.

"I think it's a positive step,'' said William Power, telecommunications analyst with Robert W. Baird & Co.

The company's shares closed Monday at $4.95, up 35 cents, or 7.6 percent, on volume of more than 2 million shares, almost twice its daily volume.

Broadwing's shares closed as low as $1.09 a share last year after trading as high as $41.06 a share three years ago.

Mr. Power said the company still faces the task of getting all the lenders to agree to extending the maturities on their loans.

He said potential bidders for the broadband unit could include Baby Bells such as SBC and Verizon, which have said they want to extend their networks.

Shortly after Mr. Mooney was named CEO succeeding Richard Ellenberger last fall, unconfirmed reports surfaced that Level 3, a Colorado-based long distance provider backed by investor Warren Buffett, offered to buy the broadband business. Level 3 has since acquired parts of the network operated by Genuity Inc.

It's also unclear what the broadband business is worth.

Mr. Power said it was hard to envision the company receiving more than $1 billion for the business.

Broadwing said it will record about a $2 billion noncash, pretax charge for the just-completed fourth-quarter to reflect the value of the tangible assets of the broadband unit.

Last year, the company took a $2.1 billion writedown of goodwill, in line with accounting rules, stemming from its 1999 acquisition of the broadband business for $3.2 billion.

Broadwing also reiterated earlier guidance that it expects to report revenues for the year of $2.15 billion and earnings of $640 million before interest, taxes, depreciation and amortization.

The company said it will delay its year-end earnings release, normally at the end of January, until it completes negotiations on extending the maturities of its bank credits and has a better view on the possible sale of the broadband business.

E-mail mboyer@enquirer.com.

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