PSINet defaults on debt and teeters on brink of bankruptcy

NEWS The company admitted that this month it will default on debts to the tune of $37.7m - a figure which is expected to rise to $50m in June. These debts include interest payments. Analysts are warning PSINet customers to take action quickly to secure alternative suppliers.
Thomas Watts, internet infrastructure analyst at Merrill Lynch, said: "Customers should have looked around for an alternative supply already. Those that haven't should do it quickly." Watts believes "the company [will] file for bankruptcy any day now". PSINet could be forced to take action by suppliers who are owed money. Defaulting on interest payments entitles a supplier to start immediate bankruptcy proceedings against a company. Filing for bankruptcy protection under Chapter 11 in the US should give PSINet temporary protection from its suppliers, enabling the ISP to keep the service running, while the business is restructured or is broken up for sale. Having not seen the contracts, analysts were unsure whether PSINet customers would be legally entitled to change supplier simply on the grounds of the company's financial instability. Many PSINet customers could be on three to five year contracts. But Riyad Said, MD of the technology section at financial analysts Friedman, Billings, Ramsey Group, is confident that customers are looking at contingency plans, such as finding an alternative supplier. One PSINet competitor pointed out that most contracts have get-out clauses. "Most customers' legal departments will say: 'The penalty clause is a year, but we won't pay it, and chances are they won't chase small-fry like us for payment.'" PSINet's representatives and spokespeople were in a meeting all day and the company was therefore unable to comment. PSINet customer HP declined to comment, except to say that PSINet is one of its providers and that the relationship is continuing. Other customers, including easyEverything, were unavailable for comment.