WinStar Files for Chapter 11, Sues Lucent for Breach of Contract

Federal telecommunications provider WinStar Communications Inc. filed for Chapter 11 bankruptcy protection April 18, hoping to give itself breathing space to restructure its debts while continuing operations.

"We expect to emerge from the Chapter 11 process with a new balance sheet that has significantly less debt, thereby dramatically lowering our interest payments and providing us with more operating flexibility," said William Rouhana Jr., chairman and chief executive officer.

"During the restructuring process, we will focus on maximizing the untapped potential of the 140,000 addressable businesses in the 4,800 buildings that are directly connected to our already existing, domestic built-out broadband network," he said.

WinStar, based in New York, has more than 30,000 customers and produced revenue of more than $700 million in 2000, he said.

WinStar spokesman Peter Duda said the company "does not anticipate any more layoffs." Now that the filing has been made, the next step is for the company's creditors to form a committee. WinStar will develop a restructuring plan, which the committee of creditors must approve, after which the bankruptcy judge will review it, Duda said.

WinStar is the sole provider of local telecommunications services to federal agencies in Baltimore and Cincinnati under the General Services Administration's Metropolitan Area Acquisition contracts. The company also is a vendor in 10 other MAA contracts with multiple providers.

The company's filing for Chapter 11 protection may not affect its status on the dozen MAA contracts, but could affect its ability to land future government work, according to Scott Chaplin, associate general counsel with Getronics Government Solutions LLC, McLean, Va.

"In terms of the government contracts it presently has, this doesn't affect [WinStar's] ability to perform, [but] it does affect its ability to get new awards," Chaplin said. "It also has an effect on subcontracts. Many contracts have a clause [allowing] the prime to terminate the subcontract automatically."

As the customer, GSA is not likely to be able to change or cancel the contracts, Chaplin said, unless a performance problem arises.

In a related move, WinStar filed a $10 billion lawsuit against Lucent Technologies Inc., alleging the latter company failed to meet its obligations under a strategic partnership agreement, including failure to pay more than $90 million to WinStar at the end of March.

"We filed this lawsuit today to recover damages caused to the company because of Lucent's failure to perform and breach of the contract we had with them," Duda said. But "our ability to successfully emerge from this bankruptcy does not depend on this litigation."

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