SAN FRANCISCO--Excite@Home bondholders are formally opposing the sale of the troubled company's broadband assets for $307 million to AT&T, a move aimed at putting some teeth into demands for a
substantially higher price.
Bondholders have split from other creditors vying for the remains of the
once high-flying company, pressing for more than four times the current
bid, according to sources familiar with their demands. The group is owed
more than $750 million in long-term debt and stands to lose
almost all of it under AT&T's proposal.
On Friday, the bondholders filed a motion with the bankruptcy court, asking it to compel Excite@Home to reject its contracts with cable companies.
The order would ask Excite@Home to tell the cable companies that it will suspend service promptly if those companies don't either enter into new contracts that will provide enough money to pay Excite's debts, or agree to buy Excite for enough to pay the creditors in full, said Martin Bienenstock of Weil Gotshal & Manges in New York, attorney for bondholders.
"It's a conventional use of the bankruptcy code for a company to reject its bad contracts and to negotiate better ones," he said. "That's exactly what this company should be doing."
The court on Friday heard objections to the current price. Bondholders are also seeking interviews with AT&T and Excite@Home management to find out how they arrived at the company's valuation.
"The (bondholders) committee is going to be taking its own steps" to raise
the company's price, Kenneth Brown, an attorney for a committee representing bondholders, said in court. "We don't take these steps lightly."
It's unclear what those next steps might be, although sources have said that bondholders could exert some leverage on AT&T, threatening to push for a network shutdown if the price isn't raised, or could seek to have the
company continue to run independently. Less likely would be a sale to
another party, such as Microsoft or EarthLink.
For now, it's a game of brinksmanship.
"The two parties are playing the extremes right now," said a source close to the dealings. "AT&T is lowballing, and Weil (Weil Gotshal & Manges) wants par, but AT&T isn't blinking."
The source said the most likely outcome is that AT&T will estimate how much extended litigation would cost and will settle somewhere in the middle, if at all.
In any case, AT&T has all the leverage. "After all, it's not like anyone is coming in to give a better deal to Excite@Home bondholders," the source said.
Excite@Home filed for bankruptcy protection Oct. 1 and simultaneously
announced an agreement to sell its high-speed Internet assets to AT&T for
$307 million. The company said it would "wind down" its Excite content
division if no buyers emerged.
But the price, for a company with more than 3 million subscribers and close
to $1.3 billion in outstanding debt, almost immediately sparked controversy.
Those creditors who were first in line to be paid back went to court to
lock up whatever assets they could, succeeding enough that the company
announced Oct. 10 that it would have to stop signing up new customers.
Desperate to keep a service co-branded in their names operating in ordinary
fashion, cable companies AT&T, Cox Communications and Comcast agreed to
help the company restart sign-ups.
In court Friday, an Excite@Home attorney said the company had increased the amount it charges cable companies for operating the Net service, immediately adding $50 million to the company's cash balance.
Since the announcement of that deal, however, the bondholders that hold the
vast majority of the company's long-term debt have sought to up the price
or find a new buyer.
The way AT&T and the other cable companies scrambled to keep the service
running without break this week is a clear sign that more money should be
on the table, they say.
"If that's any indication of how valuable the asset is, anyone can put one
and one together," one bondholder source said.
The creditors are seeking a valuation that would be higher than
Excite@Home's near-$1.3 billion debt, or more than four times what AT&T has
already offered, sources say.
An attorney for Excite@Home said bondholders had not cited a specific
value but in letters indicated they wanted a number high enough to cover
the company's complete debt.
Bondholder sources said they were comparing the company's valuation to two
other deals struck this month. High Speed Access, a smaller broadband
Internet company, was sold to Charter Communications for $81 million. SBC
Communications also agreed to buy Prodigy Communications, an Internet
service provider that has recently focused on high-speed Net access, for
Creditors have hired financial advisory firm Conway Del Genio Gries to
settle on an independent valuation of Excite@Home's assets based on this
kind of market comparison.
Creditors are also seeking to depose Excite@Home's board of directors,
the company's CEO Patti Hart and even AT&T chief executive C. Michael Armstrong as a way to ascertain whether AT&T's original bid was too low.
"This thing reeks," a bondholder source said.
Staff writers Margaret Kane and Larry Dignan contributed to this report.