MFN Scrambles to Raise Cash

Major fiber-optic carrier Metromedia Fiber Network may run out of money before the year ends, unless it can persuade skeptical bankers to lend it $350 million.

Citicorp and Salomon Smith Barney have promised $62.5 million and have given MFN two extensions to raise the other $287.5 million.

Meanwhile Wall Street rumors are that John Kluge, a major MFN shareholder, plans to take the company private, perhaps in conjunction with a restructuring of Metromedia International Group, a telecommunications and entertainment holding company Kluge also controls. The companies did not respond to requests for interviews.

"The syndicated bank loan markets are substantially closed to wireline companies in the metropolitan market," said John Page, an analyst at Moodys Investors Services.

MFN has networks in 27 domestic and international cities, and plans to expand that number to 67. The company also provides Internet management and hosting services. Most customers are carriers, but BP and Datek Online Holdings are also clients.

MFN is bleeding cash. The company has spent $2.8 billion so far this year, and expects to spend $3.4 billion for the whole year, but it had only $601 million in the bank on March 31. MFN spent $671 million in the first quarter, primarily on its network, and has $2.6 billion in long-term debt or obligations.

Verizon Communications has invested about $2 billion in MFN, and is marketing its service to Fortune 500 companies as a local fiber access partner, said Vik Grover, an analyst at New York brokerage firm Kaufman Bros. "I dont see how Verizon will let that unravel," Grover added.

But John Kane, CEO of Telseon, a carrier that leases fiber from MFN, said banks are not eager to lend money to heavily indebted carriers. Even so, Kane said he expects to continue using MFNs fiber.