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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.
About theWHIR.com
Since 2000, The Web Host Industry Review has made a name for itself as the foremost authority of the Web hosting industry providing reliable, insightful and comprehensive news, interviews and resources to the hosting community. TheWHIR is an iNET Interactive property. For more information on iNET Interactive, visit http://www.inetinteractive.com
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