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@Home contracts await Friday decision

A bankruptcy court judge's decision will give bondholders and other creditors an idea of whether they will be reimbursed for their investments in the ailing Excite@Home.

Dawn Kawamoto Former Staff writer, CNET News
Dawn Kawamoto covered enterprise security and financial news relating to technology for CNET News.
Dawn Kawamoto
3 min read
Excite@Home is expected to seek bankruptcy court approval Friday for a $355 million deal to provide high-speed Internet access to cable partners for the next three months, according to a new decision by the bankruptcy court judge.

Judge Thomas Carlson said Wednesday that he would decide whether to approve the contracts with Cox Communications, Comcast, Mediacom and other cable companies on Friday. That decision would give bondholders and other creditors an idea of whether they would be reimbursed for their investments in the ailing company.

The pending court approval is just one of many issues the once high-flying high-speed Internet access company hopes to resolve as it winds down its operations for a Feb. 28 closure.

Determining how much money Excite@Home collects from cable companies could put an end to a series of lawsuits and animosity from creditors, which range from bondholder committees to computer manufacturers including Dell Computer.

At least one committee may sue AT&T for rescinding its $307 million bid to purchase Excite@Home's assets. AT&T spokeswoman Eileen Connolly said AT&T executives informed Excite@Home CEO Patti Hart about the decision to withdraw the offer late Monday afternoon.

Creditors had previously tried to stall the AT&T purchase because they thought AT&T's bid was as much as $700 million less than what the company's assets--including a subscriber list of 4.1 million broadband customers--were worth.

The contracts up for approval Friday require the cable companies to pay Excite@Home $355 million for three months of service to customers and to help in transitioning customers from Excite@Home's network to independent networks run by the cable companies. Bondholders and other unsecured creditors will receive whatever remains of that $355 million when the company dissolves in late February.

see special coverage: Complete coverage of Excite@Home troubles The vast majority of Excite@Home's cable partners have already signed deals or are still negotiating. But Excite@Home terminated service to 850,000 AT&T customers Saturday and to nearly 40,000 Adelphia customers Monday because talks between Excite@Home and both cable partners broke down.

The contracts with Cox, Comcast and other partners, signed over the past several days, are worth $48 million more than AT&T's original offer. That makes them a relatively good deal for creditors, who are expected to approve the contracts.

Creditor parade continues
Approval of the contracts won't entirely end Excite@Home's legal woes. Another group of irate creditors--lease equipment companies--appeared in San Francisco bankruptcy court Wednesday.

Attorneys for the lessors, who loaned Excite@Home computers, servers and other office equipment, want $140 million in outstanding lease obligations that Excite@Home agreed to before it filed for bankruptcy in late September. They also want monthly rent payments for October and November, when the company was operating under Chapter 11 of U.S. bankruptcy laws.

see CNET Internet: Find a broadband provider "Not one dollar has been paid to the lessors, whose equipment is critical to the operation," said Geraldine Freeman, an attorney with Sheppard, Mullin, Richter & Hampton. Freeman represents some of the larger equipment lessors.

Under bankruptcy-law provisions, leasing companies must be paid for the use of their equipment 60 days after a case is filed, which for Excite@Home was Dec. 1. The company, however, is challenging whether some of the equipment lessors are actually finance companies. If they are finance companies, they would receive payment from the 60th day forward; they would not receive retroactive payments.

Suzzanne Uhland, an attorney with O'Melveny & Myers representing Excite@Home in bankruptcy court, said the company is willing to create a separate fund for the retroactive payment. Money from that escrow account could be paid to the equipment lenders if the court orders it to do so.

Attorneys for the equipment leasing companies expect to file a motion as early as this week to receive payment. Dell, which leased 97 servers and 70 desktops to Excite@Home, is among the numerous equipment leasing companies in line to collect money.

Carlson expects to address the concerns of the 40 equipment lease companies Jan. 4.

see CNET Internet: Test your bandwidth If he allows the companies to repossess their equipment, it may disrupt cable companies such as Comcast and Mediacom, which are trying to transition their customers to their own networks between now and late February.

But Uhland said Excite@Home has enough cash on hand to pay the equipment lessors if required. Troubles between Excite@Home and the leasing companies should not interfere with the cable companies' efforts to transfer customers to their own networks, she said.