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Winstar files bankruptcy
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April 18, 2001: 12:36 p.m. ET
Wireless telecom also files $10B breach of contract suit against Lucent
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NEW YORK (CNNfn) - Broadband communications provider Winstar Communications Inc. filed for Chapter 11 protection Wednesday under the U.S. Bankruptcy Code and announced a breach of contract suit against Lucent Technologies Inc. that seeks $10 billion in damages.
The telecom company's suit against Lucent also seeks a court order requiring it to live up to terms of its partnership agreement with Winstar, including a $90 million payment that Winstar said Lucent failed to make March 31.
"Lucent's breach of its contract with Winstar has forced the company to seek protection under the U.S. Bankruptcy Code," Winstar said in the suit.
Lucent Technologies spokesman Bill Price called Winstar's suit "absolutely frivolous and without an ounce of merit," saying Lucent did not breach any of its obligations to Winstar.
"They're in breach of the... agreement with us and are in payment default with us," he told CNNfn.
Lucent on Monday declared Winstar in default of their agreement.
Lucent said the two companies signed a five-year supply pact in October 1998 calling for Lucent to supply Winstar with wireless broadband network systems for business customers. Lucent also agreed to provide up to $2 billion in equipment financing.
The telecommunications equipment maker already has lent Winstar about $700 million, according to people familiar with the matter.
Bankruptcy filing not a surprise
Winstar said it has arranged for $75 million of debtor-in-possession financing with a group of banks to allow it to keep running normally as its case makes its way through the courts. The amount could rise to $300 million if certain conditions are met, it said.
In a press statement, Winstar CEO William Rouhana said the company expects to emerge from bankruptcy with significantly less debt, "thereby dramatically lowering our interest payments and providing us with more operating flexibility."
The bankruptcy filing was not a surprise. Winstar defaulted on $75 million of interest payments Tuesday and said it was considering bankruptcy as an option. The company cut 2,000 jobs and halted expansion plans earlier in the month.
Standard & Poor's cut its ratings Wednesday for Winstar's debt to "D," or default. Another agency, Moody's Investors Service, says Winstar has about $6.3 billion in debt.
New York-based Winstar uses a new fixed-wireless technology that transmits voice and high-speed data service using radio signals rather than fiber-optic cables or telephone wires.
In Wednesday trading, Winstar (WCII: Research, Estimates) shares continued a months-long slide, well off their 52-week high above $44 a share. Lucent (LU: up $0.53 to $7.68, Research, Estimates) shares fared significantly better. 
- from staff and wire reports
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