USinternetworking Forges Ahead Despite Chapter 11 Filing

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Other than the elimination of $120 million in debt from its balance sheet, little is expected to change at USinternetworking after filing for Chapter 11 bankruptcy.

"The strategy of the company and the management stay the same," said USi CEO Andy Stern. "The business is working. We've gotten to EBITDA [earnings before interest, taxes, depreciation and amortization break-even, and we are virtually at operating cash flow break-even."

USi's Andy Stern says the ASP has made significant operational changes.

As part of an investment deal with Bain Capital Partners, USi, based here, had to eliminate a significant portion of its debt before it could receive $100 million from Bain. The money will be used to fund USi's growth and regain market confidence, Stern said. As part of the deal, Bain also becomes sole owner of USi, which is no longer a public company.

Despite signs that it would file for bankruptcy, USi has signed new customers including a large oil company, which shows customers' faith in the com-

pany's model, he said.

But observers said USi will have to do more than eliminate debt to regain its position as a leading ASP.

"Restructuring debt is not enough," said Laurie McCabe, an analyst at Summit Strategies. "I think they need to re-evaluate their model as well. The ASPs that are doing well are ones that are focused. USi is trying to boil the ocean."

John Charters, CEO of Qwest Cyber.Solutions, also questions USi's business-as-usual strategy.

"I don't think the reduction of debt makes a company a more viable business," he said. "What it usually takes is a significant change in operations and execution. And you also have to ask what it means to go from being a public company to a private [one with one owner."

And USi is still $70 million in debt. About $65 million of that debt, however, is equipment leases that will be paid over the normal course of time, Stern said.

Although he emphasized little will change at USi following its expected emergence from bankruptcy this spring, the ASP has already made significant operational changes, as well as changes to its services strategy to reduce cash strain.

The company's operating cash burn rate, for example, went from $80 million during the third quarter of 2000 to $7.8 million in the third quarter of 2001.

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