Bermuda-Based Casualties Suffer Post-Enron Blues

by Mike Godfrey, Tax-News.com, New York

06 February 2002

Bermuda-based giants Tyco and Global Crossing have made news again this week as in their very different ways they try to resolve current difficulties and their share prices continue to languish.

Tyco has restructured its debt by drawing down $5.9bn of its existing bank facilities, allowing it to repay all of its $4.5bn of outstanding commercial paper. The move postpones any debt repayments until February 2003, by which time the company's four-way break-up is expected to be complete. The company also announced an imminent disposal of its Tyco Capital leasing arm. But its shares didn't respond to what would have been positive news in more normal times, losing 11% to $31.50 on Monday and a further 25% to $23.10 on Tuesday, their lowest level for more than three years. Tyco's bonds also fell sharply. The shares have lost 60% of their value since the company announced it would break itself up in order to unlock 50% of hidden value.

On Monday Global Crossing, which is under Chapter 11 protection, denied allegations that it had connived with auditor to use accounting trickery to inflate profits and mislead investors. "There's no merit to these allegations," said Dan Cohrs, chief financial officer. "All of these allegations relate to things that have been reviewed by our auditors, and in some cases, by the SEC when we completed our public offering." The SEC last week asked Global Crossing to supply information about a series of agreements that the company entered into with other carriers to lease bandwidth capacity to one another. Global Crossing said it would hire an independent auditor other than its regular accountant, Andersen, to review the accounting matters being investigated by the Securities and Exchange Commission. Its shares had fallen a further 20% at the end of last week to $1.38 on the OTC market in New York, down from a 52-week high of $154.

These rumours are not new: Ray Olofson, a former vice-president of finance, wrote to the company's attorneys last August alleging that Global Crossing was booking up front revenues from long-term leases with other carriers while amortising the matching expenses over a number of years.

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