Metromedia Puts the Hangman on Hold for Another Day

The latest telecom death-watch story gets a one-day reprieve.
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Metromedia Fiber (MFNX) is shaping up to be this week's telecom casualty, as its latest financing deadline looms Friday. And if Metromedia doesn't get its money, some big-name suppliers and partners will feel the sting.

The White Plains, N.Y.-based urban optical communications network builder is running short on time to raise an undisclosed amount of cash or face a bankruptcy filing. Late last month, Metromedia Fiber landed a commitment letter for $235 million from unnamed equipment suppliers and $150 million from

Citicorp

. Thursday, those lenders granted Metromedia an extra day to raise the required funding that would allow the company to use that financing.

Metromedia Fiber is only the latest of a string of communications service providers to run short on cash as revenue fails to materialize and investors flee plummeting stocks and bonds. These failures have put a heavy strain on suppliers as they watch their sales dry up during the now yearlong equipment-spending slump.

Among Metromedia Fiber's suppliers are

Lucent

,

Nortel

,

Cisco

and

Juniper

.

As of June 30, the company owed its suppliers a total of $310 million. Lucent has a total of $430 million in announced contracts with Metromedia Fiber, but a person familiar with the contracts says its exposure amounts to less than 10% of that.

Metromedia Fiber specializes in stringing together optical networks within cities. As such, the company represented one of the few alternatives to the local Bell phone service providers. The collapse of Metromedia Fiber would also affect a number of joint network construction projects and network swap arrangements with partners like

Williams Communications

,

Level 3

,

Qwest

and

Global Crossing

.

It's not difficult to see how Metromedia Fiber got into the trouble it's in when you consider its customer list. Take out the Bells --

Verizon

and

SBC

-- and the list reads like a bankruptcy court docket.

As

TheStreet

documented in March, there seemed little likelihood that Metromedia would be able to continue operations under its current cost structure and the weight of its debt obligations. The company has about $225 million in interest payments to make this year, but through six months had brought in only $169 million in revenues.

So what's next? Creditors typically want cash and require that assets be sold at auction. A few recent telecom liquidations have seen assets sold for between 12 and 30 cents on the dollar. Some observers say that undercity fiber and used metro optical gear may fetch a slightly better price due to higher demand, but far from the full book value some bondholders would like to see.

Let's see what wreckage washes up next week.