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September 27, 2001 — (WEB HOST INDUSTRY REVIEW) — Global Crossing Ltd., a provider of integrated telecommunications solutions, released a statement Tuesday summarizing its relationships with the now-bankrupt Exodus Communications, Inc., showing confidence in the fate of the Web hosting giant.
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Global Crossing owns approximately 108 million common shares, or 19 percent,
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of Exodus. In the second quarter of 2001, Global Crossing announced that it
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was evaluating the carrying value of its equity investment in Exodus. The
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company expects to reflect the revaluation of the carrying value of its
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investment in Exodus as a non-cash charge in its third quarter 2001
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statement of operations.
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According to Morgan Stanley, Global Crossing may be stuck with annual lease
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payments of $70 million if Exodus cannot make its payments. “It would amount
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to $800 million over the course of the lease,” CBS Marketwatch was told.
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“But Global Crossing would try to reduce that immediately by subletting the
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space.”
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Global Crossing, together with its subsidiary Asia Global Crossing, was also
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the primary supplier of network services to Exodus, with a ten-year contract
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to provide at least 50% of Exodus’s incremental network services outside
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Asia, and at least 60% in Asia. This contract specifies that the supplier
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relationship would continue in the event of a change of control of Exodus,
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although the agreement is terminable two years after any acquisition of
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Exodus by a network provider.
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Global Crossing offers Web hosting and managed hosting services to its
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customers through a re-sale agreement with Exodus, but said that its data
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service revenue has not been materially affected by this arrangement. In the
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event that Exodus were unable to offer these services, Global Crossing could
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provide the services itself or through another supplier. Global Crossing
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expects the primary driver of growth in its data services to be demand for
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global IP services, such as global IP virtual private networks and voice
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over IP, for which its owned and controlled network is uniquely capable.
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In connection with the sale of its GlobalCenter subsidiary to Exodus, Global
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Crossing agreed to guarantee certain obligations relating to real estate
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leases assumed by Exodus in that transaction. As previously reported in
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Global Crossing’s 10Q report for the second quarter of 2001, on an
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aggregated basis, the annual lease payments average approximately $70
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million per year over the life of the leases. In the opinion of management,
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in the event that Global Crossing is required to satisfy some or all of the
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guaranteed lease commitments, annual payments would be significantly reduced
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to an amount that is not material through negotiated termination of the
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guarantees, discounted landlord buyouts, permitted sub-leases, and other
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mitigating actions, and, in any event, the satisfaction of these lease
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commitments would not have a material effect on the company’s financial
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condition. The remaining lease terms are between approximately 5 and 18
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years.
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Global Crossing shares fell 9 percent to $2.69 in Tuesday trades.
