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. Last Updated: 07/27/2016

Global Crossing Declares Bankruptcy

LOS ANGELES -- Global Crossing Ltd., which built the world's largest undersea communications network, sank into bankruptcy Monday under the burden of more than $12 billion in debt.

The Chapter 11 filing by the Beverly Hills, California, company is the largest ever by a U.S. telecommunications firm and a huge setback for founder and chairman Gary Winnick, a feisty former bond trader who was crowned the richest man in Los Angeles when his Global Crossing stake grew to be worth $6 billion in 1999.

Winnick's push to build a global network was not ill-conceived, just ill-timed, analysts said. The web of fiber-optics itself may have ended up with extra capacity and overwhelming debt, but now it represents a near-steal for a buyer.

As part of the bankruptcy filing, an investment group led by Hong Kong billionaire Li Ka-Shing plans to pump $750 million into Global Crossing in an effort to keep it afloat. But that was little consolation for the company's creditors, lenders and shareholders, who stand to recover little, if any, of their investments.

"This is a complete debacle ... everyone's worst nightmare," said Patrick Comack, an analyst at Guzman & Co. "It's awful for debt holders. It's awful for shareholders. It's a shame."

Global Crossing chief executive John Legere called the filing, the fourth-largest in U.S. history, "a hard decision."

"The company at this level and size is just not able to handle the debt," said Legere, the company's sixth CEO in the past 4 1/2 years.

In its filing, Global Crossing said it had $12.4 billion in debt and assets of $22.4 billion. Its largest creditors are investors who purchased $6 billion in bonds and other debt securities, and a group of 81 banks, led by JP Morgan Chase and Citibank, owed about $2.25 billion, Legere said. Global Crossing was worth $55 billion at its peak.

Legere said the company's bankruptcy filing is just part of a plan aimed at rescuing Global Crossing. The central component is a tentative agreement with Asian powerhouses Hutchison Whampoa Ltd. -- controlled by Li -- and Singapore Technologies Telemedia, which have agreed to pay $750 million for a majority stake of undefined size in Global Crossing. If negotiations go well, Legere said, Global Crossing could emerge from bankruptcy court before the end of the year.

Both Asian investors already have close ties to Global Crossing and its affiliated companies through overseas ventures. Hutchison owns half of Hutchison Global Crossing, a communications provider in Hong Kong, while ST Telemedia owns half of StarHub Crossing, a carrier in Singapore.

Analysts say both companies likely see the investment as a way to secure relatively cheap access to worldwide communications networks, which they need to serve their international corporate customers. With the investment, the companies would also pick up Global Crossing's majority stake in Asia Global Crossing, a separate company that runs a communications network in Asia.

Some believe the core assets at Global Crossing -- a nearly complete network that covers more than 160,000 kilometers and connects 200 major cities worldwide -- could draw other bidders in bankruptcy court.

The current deal with the Asian firms is not exclusive, and still must win the approval of various stakeholders and the bankruptcy court. Other companies -- such as Deutsche Telekom, WorldCom, SBC Communications or Verizon Communications -- may make an offer, analysts said.

"It's not an unreasonable expectation," said Tom Soja, who heads the Boston-based telecommunications analysis firm T. Soja and Associates.

"Anyone with cash, you can't rule out as a bidder, particularly if they have customers who need that worldwide connectivity."