Excite@Home lender demands payment

The bill collectors are knocking on the door at Excite@Home.

The struggling high-speed Internet company said Monday that holders of notes worth $50 million are demanding payments from the company by the end of the month. The holder, Promethean Investment Group, is arguing that Excite@Home breached its commitments related to the notes.

Excite@Home said it doesn't believe it has breached the agreement. But if it is forced to pay up, "it would have a materially adverse impact on the company's liquidity and its ability to fund its operations." Analysts said the future of Excite@Home, which is controlled by AT&T, is uncertain following the deterioration of its media business, funding problems, and a series of earnings disappointments.

While bankruptcy does loom on the horizon, there is hope that some of Excite@Home's investors could help salvage some of the company's operations, said Fred Moran, an analyst at Jefferies.

"Excite@Home is definitely fighting for its future as an independent company. These kinds of events are the things that trigger either restructuring or buyout," he said. "I think that AT&T, which owns a quarter of the company, sees some value in the assets, as do other cable providers and Internet service providers, because they do have a unique infrastructure that connects a majority of cable systems to the Internet. And that operation must be maintained. But in what shape or form it's maintained remains a major uncertainty."

But not everyone thinks the company will be able to pull out of the trouble.

"If Promethean is calling in their (notes) that would, in my view, drive them into bankruptcy," said Drake Johnstone, analyst at Davenport and Co. in Richmond, Va. "I don't anticipate someone stepping in at this point or prior to bankruptcy proceedings."

He did note that bankruptcy could allow Excite@Home to restructure its debt, and if the debt were restructured in a way that allowed the company

CNET Radio Analyst John Corcoran of CIBC World Markets, takes a look at the troubled times for Excite@Home. (5:43)   • Play clip

to continue operations "perhaps its cable partners would help facilitate the company continuing as an ongoing concern. But (the partners) will have more leverage in bankruptcy court."

If Excite@Home has to repay the $50 million, it could accelerate the company's financial woes. The company had about $183.4 million cash on hand at the end of its June quarter and is talking to its cable partners about increased funding, analysts said.

"In our view, the circumstances at Excite@Home are very fluid at this time," Michael Kupinski, an A.G. Edwards analyst, wrote in a research note. "There likely will be a series of announcements within the next few weeks that will determine the company's fate."

A representative for Excite@Home said the company was notified of Promethean's decision over the weekend and "will be in discussions with Promethean and investigating reasons behind this."

Promethean representatives were not immediately available for comment. Promethean runs a hedge fund that frequently helps fund cash-strapped technology companies with private convertible bond deals. Analysts consider Promethean a lender of last resort, a tag the firm denies.

Ernst & Young, the company's former auditing firm, said last week that the company may not be able continue as a "going concern," essentially saying that the company is out of cash. Excite@Home has since terminated its relationship with Ernst & Young--although Excite@Home said the move to replace the auditor has been in the works since June--and said it has no disagreement with Ernst & Young's principles or practices.

Excite@Home also faces the possibility of being delisted from the Nasdaq, particularly if its stock continues to sink. The stock closed down 11 cents at 39 cents. Stocks can be delisted if they trade under $1 for 30 consecutive days. Excite@Home hasn't closed above $1 since Aug. 16.

In June, Excite@Home raised $100 million in a convertible bond deal that included Promethean. Under the terms of the deal, Excite@Home has to repay the $100 million immediately if the company's stock is not listed on the New York Stock Exchange, the Nasdaq or the American Stock Exchange.

The company could try to get some more cash from AT&T, its largest investor, but analysts have said a bailout is unlikely. AT&T executives would not comment. Negotiations with its cable partners "appears to be one of the last options open to the company for funding," Kupinski said.