PSINet Likely to File Chapter 11


ASHBURN, Va. — PSINet Inc. warned that because of cash flow problems, it will likely file for protection under Chapter 11 of the federal bankruptcy code and may be delisted from the Nasdaq Stock Market.

Also on Tuesday, PSINet said it hasn’t finalized its financial statements for the full year 2000 and won’t file its Form 10-K within the prescribed period as a result of “rapidly changing circumstances.” The company, which took restructuring and impairment charges during the first nine months of the year, now expects its fourth-quarter results to include additional unspecified charges that “may be significant.”

The announcement confirmed growing speculation that the Internet access and e-commerce company was headed for bankruptcy-court protection. Last month PSINet (PSIX) warned investors that its common stock could be worthless and hired financial adviser Dresdner Kleinwort Wasserstein to restructure its roughly $3.4 billion in debt in an effort to avoid defaulting on its payments to creditors.

In November, the company hired Goldman Sachs&Co. to help it review strategic alternatives, including a possible sale.

PSINet Tuesday said that unless it successfully implements one or more of the options under consideration, its existing and anticipated cash resources may not be enough to cover operating expenses. Because of its cash problems, the company said it may not continue to satisfy Nasdaq’s capital requirements for continued listing.

PSINet hired an outside consultant to prepare an independent valuation of certain potentially impaired assets to enable the company to finalize its financial statements. It said it may submit its Form 10-K within the applicable 15-calendar-day extension period.

PSINet said it expects to receive a “going concern” qualification in its audit opinion from PricewaterhouseCoopers. The auditor recently issued similar warnings about two of PSINet’s competitors, Rhythms NetConnections Inc. (RTHM) and DSL.net Inc. (DSLN), saying it doubted their ability to stay in business.

As it did in March, PSINet cautioned that it can offer no assurance that it won’t run out of cash or that its restructuring efforts will succeed. Even if its restructuring is successful, the company has warned investors that its common stock likely will have no value, and that its indebtedness will be worth significantly less than face value.

As of March 30, PSINet had about $254 million in cash, cash equivalents, short-term investments and marketable securities held in financial institutions. About $27 million of that amount secures obligations under letters of credit and similar commitments.

Shares of PSINet, which traded at a high of $35 exactly one year ago, traded at 19 cents at 4 p.m. Monday on the Nasdaq.

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