Touch America signals possible bankruptcy

Report cites mounting losses, dispute with Qwest as key factors

HELENA – Touch America said Tuesday it is running out of money and may need to seek bankruptcy protection.

By MATT GOURAS Associated Press Missoulian

The announcement came in its third quarter report filed with the Securities and Exchange Commission. The Butte-based company provides fiber-optic network and broadband products and services.

Touch America said it has just $17 million left from about $1 billion it received from selling Montana Power Co. utility and electricity assets.

In its third quarter report, the company said it is still losing money, and probably won’t make any before the end of the year.

The company said it does not have a line of credit available to use if it runs out of cash. Also, Touch America said no agreement had yet been reached with Qwest Communications International Inc. on a dispute over $103 million Touch America says it is owed.

"If we are unable to timely obtain sufficient financing or achieve a successful resolution in our dispute with Qwest, we may seek bankruptcy protection," the filing said.

Touch America recently announced 75 layoffs and a pay cut for top executives because of ailing finances. It is also the focus of several pending shareholder lawsuits.

Cort Freeman, a spokesman for Touch America in Butte, said he couldn’t elaborate anymore on the possibility the company might have to file bankruptcy.

James Bellessa, an analyst for D.A. Davidson Co. in Great Falls, said the news should make shareholders wary.

"Bankruptcy would suggest maybe the shareholders would get wiped out," he said. "This is not a stock for the weak of heart."

Touch America released the report after markets closed Tuesday. Its stock was trading at 46 cents per share, and officials with the New York Stock Exchange have said it is in danger of being delisted.

Before Montana Power Co. sold its energy assets to focus on its Touch America subsidiary, the company’s stock had traded as high as $65.75 in March 2000.

Since then, many telecom companies have filed for bankruptcy, including industry giant WorldCom. Touch America, which sells service to some other telecom firms, said it may not get paid. Also, the company said it lost $21.5 million of business from Qwest.

Bellessa said it will be very hard for Touch America to get a loan in the current environment.

"They would have to put up their assets," he said. "Asset-backed financing is probably not the easiest thing in the industry right now."

He said a merger or buyout would also probably draw very little interest.

In the Tuesday filing, Touch America said it may be required to sell assets or parts of its business to make ends meet – regardless of whether it files for bankruptcy. Such a move may cost it key customers, vendors and employees, the firm said.

Touch America said pending litigation, such as shareholder lawsuits alleging misconduct over the sale of Montana Power, also poses a risk.

"If we are required to make payments in connection with litigation of other claims … the payment of such obligations could materially affect our ability to continue funding our operations and other commitments," the company said in its filing.

Touch America said it is still trying to add customers and decrease expenses. But the firm reported some customers are leaving the company because of billing problems, or because they are finding lower prices elsewhere.

A regulatory move to allow Qwest back into the long-distance business may also cost Touch America customers at a critical time, the company said.

For the third quarter, the company said it lost $20.9 million – up from $18.5 million announced earlier in the month.

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