Winstar files for bankruptcy, sues Lucent for $10 billion

Broadband network and service provider Winstar Communications on Wednesday said it has voluntarily filed for Chapter 11 federal bankruptcy protection and also has initiated a $10 billion lawsuit against Lucent, alleging that Lucent breached its obligations under a strategic partnership with Winstar. The alleged contract breach is what forced Winstar to file for bankruptcy, the company said in a statement.

Trading of Winstar stock on the Nasdaq was halted at 8:03 a.m. Wednesday. The Nasdaq issued a statement saying it is seeking additional information from Winstar, whose stock price fell 60%, or $0.21, and closed at $0.14 per share on Tuesday.

The New York-based company plans to use the bankruptcy proceedings as a way to restructure its finances, while continuing to provide broadband network access and service to its 30,000 business customers, Winstar said in a statement. The bankruptcy filing will not affect day-to-day operations, and the company has arranged for debtor-in-possession financing of $75 million, which could later be increased to $300 million, the company said.

Winstar is seeking immediate injunctive relief from a federal bankruptcy court that would require Lucent to perform its contractual obligations, including the payment of more than $90 million, Winstar said. Lucent allegedly failed to pay Winstar the sum on March 30 as part of an agreement between the two, Winstar said.

As a result, Winstar defaulted on a $75 million debt earlier this week. This subsequently triggered Winstar to miss a payment to Lucent for a credit facility and that cut off Winstar's access to line of credit, Lucent spokeswoman Mary Lou Ambrus said.

Ambrus called the lawsuit "absolutely frivolous and without an ounce of merit."

"We did not breach any of our obligations to Winstar," she said. "The truth is that they are in violation of their financial covenant and in default of payment with Lucent."

Since 1998, Lucent has had an agreement with Winstar to provide telecommunications equipment and services, Ambrus said. That agreement is a five-year deal, she added.

A Winstar spokesman could not be immediately reached for comment.

In its lawsuit, Winstar alleges that Lucent has not followed through on its contractual obligations and, therefore, has injured Winstar's ability to complete its broadband network, the company said. Winstar laid off approximately 2,000 of its employees, a little less than 50% of its staff, and said it would halt its network expansion on April 5.

Winstar filed the suit against Lucent in the U.S. Bankruptcy Court for the District of Delaware, the company said.

The IDG News Service is a Network World affiliate.

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