Copyright 2002 The Deal L.L.C.

The Daily Deal…10/10/2002

From LexisNexis

Global bandwidth merchant Flag Telecom Holdings Ltd. officially emerged from bankruptcy on Wednesday, Oct. 9, about six months after filing for Chapter 11 protection.

The London-based, Bermuda-registered company wiped out about $1.4 billion in debt through its reorganization, and it is expected to turn a profit in fiscal year 2004.

“It started as a free-for-all, emergency, file-in-the-middle-of-the-night bankruptcy without a hint of agreement among all the different creditor groups,” said Connor Reilly of Gibson, Dunn & Crutcher LLP, who represented Flag during the bankruptcy proceedings. “It was crucial to get out, because you’re cutting off your revenue stream while you’re in bankruptcy,” he said. “I think everybody realized that.”

While much of the debt acquired in building out Flag’s network has been shed, telecom experts have pointed out that an improved balance sheet doesn’t change the economics of the industry. Several wholesale providers plan to emerge in the coming weeks, including Williams Communications, 360networks and Global Crossing Ltd., and they may be forced to cut prices further in an attempt to attract and retain customers.

“The business plans may be scaled back, but if they’re all still involved in the wholesale business, that’s still rough and tumble,” said Frank Barbetta of Probe Research Inc. “It could be exacerbated by them emerging.”

Flag’s network includes a trans-Atlantic cable, a cable running from the England to Japan and a stake in a fiber loop that connects Japan, South Korea, Hong Kong and Taiwan.