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360networks in tepid debut
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April 20, 2000: 5:12 p.m. ET
Investors praise the fiber-optic firm's management, but worried over high debt
By Staff Writer David Kleinbard
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NEW YORK (CNNfn) - Fiber-optic network builder 360networks Inc. made tepid gains in its first day of trading Thursday, as investors expressed concerns about the company's debt level, but praised its all-star management team.
Vancouver-based 360networks on Wednesday sold 46 million shares at $14 each through lead underwriters Goldman Sachs & Co. and Donaldson Lufkin & Jenrette, raising $644 million. The company previously had planned to sell the shares for between $16 and $18 each, but cut the price following Nasdaq's steep decline last week.
In their first day of trading Thursday, the company's shares rose 4-3/16 to 18-3/16, a gain of 29 percent. 360networks has 794 million shares outstanding, giving it an equity market value of $14.4 billion.
At the same time, 360networks (TSIX: Research, Estimates) sold $800 million of junk bonds to help finance the construction of its fiber-optic network in North America and Europe. The company originally planned to sell $1 billion of debt, but market conditions forced 360networks to scale back that amount. The company carried $675 million of debt before the transaction, and plans to borrow an additional $565 million through a credit facility, giving it more than $2 billion of total debt.
"They were having some difficulty getting this deal done because the company is very highly leveraged," said Irv DeGraw, research director at WorldFinanceNet.com in Sarasota, Fla. "It's a very risky deal, and if it weren't for the superstar management team, no one would pay attention to it."
360networks' CEO is Gregory Maffei, the former chief financial officer at Microsoft Corp. Its board of directors includes Kevin Compton, a partner at the prominent venture capital firm Kleiner Perkins, and cable mogul John Malone, chairman of Liberty Media Corp. The company also has an advisory board that includes Dell Computer CEO Michael Dell and Nathan Myhrvold, Microsoft's chief technology officer.
These media and Silicon Valley luminaries have placed not only their reputations but also their money behind 360networks. Before the public stock sale, the company raised $1 billion from Comcast Communications, Liberty Media, Shaw Communications, and an investment fund run by Michael Dell. An investment group including Goldman, DLJ and Tyco International invested an additional $345 million.
The money will go toward building 360networks' planned 56,300 mile network of fiber-optic cable, designed to meet the seemingly insatiable demand for bandwidth created by mushrooming Internet traffic. The company already laid down 12,200 miles of that network by the end of last year. However, WorldFinanceNet.com's DeGraw said that the amount of fiber-optic cable that telecommunications companies have installed currently exceeds the demand for bandwidth.
"This is a highly competitive area -- it's a commodity business," DeGraw said. "The industry is very quickly getting over capacity."
The company faces stiff competition from AT&T, Sprint, MCI WorldCom, and Qwest Communications, to name a few.
360networks had revenue of $386 million in 1999 and operating income of $27.2 million. However, about $182 million in interest expense caused the company to post a net loss of $114.8 million. 
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