PSINet says it's headed for Chapter 11

By Kate Miller, IDG News Service |  Networking

PSINet Inc. warned Tuesday that it is running out of cash and will probably reorganize under Chapter 11 bankruptcy protection, and trading of its stock was halted indefinitely on the Nasdaq.

In a statement, the Ashburn, Va.-based Internet service provider said the approximately $254 million in cash, cash equivalents, short-term investments and marketable securities it had on hand as of March 30 is not enough to meet its needs.

Furthermore, the company said that though it is considering financial and strategic alternatives, including debt restructuring and the sale of part or all of the company, "These efforts are likely to involve the company's reorganization under the federal bankruptcy code."

A PSINet spokesperson would not comment further.

On Monday, PSINet requested a 15-day extension from the U.S. Securities and Exchange Commission on the filing of its annual report, citing "rapidly changing circumstances."

In that filing, the company will state that it probably will incur what could be significant restructuring and impairment charges and that it is expected to receive "a going concern qualification" from its auditor, indicating that PricewaterhouseCoopers LLP has serious doubts about PSINet's viability.

A spokesperson for PricewaterhouseCoopers also declined to comment further.

The Nasdaq halted trading of all PSINet stock indefinitely on Tuesday morning until the company could provide "additional information." In its statement, PSINet said it might not be able to satisfy the capital requirements for continued listing on the exchange.

PSINet has not released earnings since September of last year, when it revealed that it had accumulated a staggering $3.6 billion in debt. Since then the company has been attempting to sell off assets in a very unfavorable market, often at a loss.

On March 19 the company warned that its common stock probably would have no value and that its debt would probably be worth less than face value, a point reiterated in Tuesday's statement.

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