Could Fusion Connect be the next company in the channel to file for chapter 11 bankruptcy protection?
In its latest 8-K filing with the U.S. Securities and Exchange Commission, the cloud services provider said chapter 11 could be a possibility if it is unable to successfully negotiate with its creditors.
Sungard AS this week announced it will be filing for chapter 11 early next month as one analyst said the company has “struggled mightily” in recent years. And Windstream filed for chapter 11 in February.
Fusion Connect saw its stock price plummet by nearly 82 percent Wednesday, falling to just 22 cents per share, after it revealed it had failed to make $7 million in loan payments and had not filed its annual report on time.
The company’s 8-K filing late Tuesday disclosed the default and annual report filing delay.
Fusion said non-payment of the installments constitutes an “immediate event of default” under its credit agreement. It also said it has been informed by some lenders that they intend to declare all amounts borrowed to be immediately due and payable.
Should such acceleration occur, this would also result in an event of default under the second lien credit agreement, according to the filing.
“As a result of the foregoing, the company intends to seek forbearances from its lenders and intends to enter into discussions with its lenders regarding a restructuring of its debt obligations through an out-of-court agreement,” it said. “If such discussions are unsuccessful, the company may seek protection under chapter 11 of the U.S. Bankruptcy Code and, in the case of certain of the company’s subsidiaries, the Canadian Companies’ Creditors Arrangement Act.”
Fusion was engaged in discussions with Holcombe T. Green Jr., its majority stockholder and vice chairman of its board of directors, to secure additional liquidity through a capital infusion; however, Fusion has been unable to secure such capital infusion from the stockholder.
Last year, Fusion bought Birch Communications’ cloud and business-services business, including its customers, operations and infrastructure, in a transaction valued at $600 million. It also acquired MegaPath for $71.5 million, gaining its SD-WAN, UC and security offerings.
As for the annual report, Fusion said the filing delay is due to the need for additional time to quantify the impact of Birch’s accounting errors.
Fusion also postponed its earnings call, which originally was schedule for March 14.