June 01, 2001, 11:17 AM — Beleaguered Internet service provider (ISP) PSINet Inc. announced Friday that it is filing for Chapter 11 bankruptcy, along with 24 of its U.S. subsidiaries, while four of its Canadian operations are also filing for bankruptcy protection.
PSINet said that its Asian, European and Latin American operations, as well as its Metamor consulting business, are not affected by the filings, however, and that all of its subsidiaries will be providing reliable customer support.
News of PSINet's bankruptcy filings came as no surprise to observers who have watched the company's downward-spiraling activities over the past few months, after overextending itself in a series of acquisitions. Shortly after the Ashburn, Virginia-based company announced job cuts and a fourth-quarter loss of US$3.2 billion in April, it was delisted from the Nasdaq stock market (See "PSINet de-listed from Nasdaq stock market", April 23). The company donned a new chief executive officer (CEO) in late April (See "PSINet names new CEO, prepares to restructure", April 30) and announced serious restructuring, but has been unable to save itself from bankruptcy.
PSINet's U.S. operations filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York Friday, 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. The company has asked the courts in the U.S. and Canada that it continue to provide employees with their normal salaries and benefits, but said that it is reviewing its options and is considering a sale of the company as a going concern, or as a stand-alone entity.
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 a statement that the restructuring was necessary given that their operations were not flexible enough to respond to changes in the market.
In further news, PSINet announced that it signed a letter of intent with Canadian telecommunications company 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 ISP said that it has entered a definitive stock purchase agreement for the sale of its operations in Panama to REE Panama S.A. and is considering alternatives for its Latin American operations.
