Touch America files for bankruptcy

Touch America Holdings Inc., the Butte-based company that has been in a financial free-fall for more than a year, filed for federal bankruptcy protection in Delaware on Thursday, one day after laying off nearly 60 percent of its employees.

By CHARLES S. JOHNSON Missoulian State Bureau

The press release announcement from the company didn’t come until 7:25 p.m., long after courts in Delaware had closed.

Bob Gannon, chairman and chief executive officer of Touch America, said in the release that the company was seeking Chapter 11 bankruptcy protections, which allow a company to reorganize its finances while protecting it from creditors’ lawsuits. A majority of creditors, however, must approve of the company’s financial reorganization plan.

"Touch America has been struggling to become cash-flow positive in this difficult economic environment," Gannon said. "Based on the continuing uncertainty about our liquidity, the board decided that seeking bankruptcy protection was the best option to deal fairly with our creditors, customers and employees."

Touch America has seen its stock price plummet. Trouble began when Montana Power Co. announced in March 2000 it was selling off the rest of its assets, including its electricity and natural gas distribution and transmission businesses and its oil, gas and coal businesses, to focus on telecommunications. The company’s stock peaked at $65 a share in the spring of 2000, but has been in a downward spiral since. It closed Thursday at 11 cents a share.

The New York Stock Exchange delisted Touch America in March because it stock had sold for less than $1 a share for eight months. The Over the Counter Bulletin quit trading Touch America in May for failing to file reports with the Securities and Exchange Commission. Company shares now are traded on "pink sheets" that require no financial disclosures.

In the press release Thursday, Touch America also announced the sale of its private line and dedicated Internet businesses for $28 million, subject to certain post-closing adjustments, to 360networks Corp., of Vancouver, B.C., a leading broadband telecom service provider backed by WL Ross & Co., of New York City.

Touch America intends to use the $28 million in proceeds to pay for what it called its pre- and post-filing obligations.

When it laid off 216 of its 378 employees Wednesday, including 100 in Montana, Touch America offered no any severance pay. It provided health insurance through June 30 to the laid off workers.

Touch America said it received a commitment for a "debtor-in-possession credit facility" for $5 million from WLR Recovery Fund II, LP, a fund managed by WL Ross & Co. This facility, the company said, will add liquidity to pay vendors for post-bankruptcy petitions goods and services and to pay remaining employees in the course of business.

Touch America said it would continue with its cost-cutting programs to ensure efficient and effective operations as it pursues other buyers to buy the remaining parts of the company.

Gov. Judy Martz said Thursday was saddened by the bankruptcy filing and layoffs of workers and the impact on other businesses and tax bases in Montana.

"I’m concerned about my town," she said of Butte. "I can hardly talk about it. It bothers me."

"I wish I had some solutions, some job offers, to give them, some encouragement, but I, too, am very discouraged, but we are going to continue to seek jobs for a different economy in Montana," she said.

Jim Bellessa, vice president of research for D.A. Davidson & Co., wondered what else Touch America has left to sell.

"I didn’t think there was a lot of chance they would survive the recent period," he said. The company had $20 million in the bank in March and was burning through $5 million to $8 million a month in cash, he said.

"That would put them close to having nothing in the bank," he said.

What’s more, he said, a federal arbitrator ruled in March that Touch America owes Qwest $60 million from a series of legal disputes. That amount was to be modified by the rest of the ruling that could favor Touch America. The company said at the time it wouldn’t release its financial reports until the federal ruling is handed down.

"I would have thought they would have waited for a final decision," Bellessa said.

Bellessa said the $5 million from the credit facility announced Thursday "doesn’t go very far."

One advantage Touch America might have under bankruptcy protection is that a number of the lawsuits filed against it may be dismissed, Bellessa said.

He did note that 360networks Corp. is a telecommunications company that came out of bankruptcy last year.

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