August 8, 2002 -- Equinix Inc.'s ongoing effort to reduce its debt faces a crucial challenge in coming weeks, as the company must complete a bond-for-stock swap to comply with new terms of its bank loans.
Chairman and CEO Peter Van Camp said owners of Equinix' high yield bonds are open to the company's proposal to exchange most of the bonds for up to 15 million newly-issued shares of common stock.
"We have had discussions with our bondholders, and they have indicated a willingness to consensually complete this transaction," said Van Camp.
Last week the company's bank lenders agreed to relax revenue covenants on Equinix' senior credit facility until Sept. 30. In a conference call Thursday evening, chief financial officer Renee Lanam said that as of June 30, Equinix had not been in compliance with the revenue requirements of the loan.
In return for a waiver of those covenants, Equinix agreed to prepay $5 million of the loan and give up the right to borrow an additional $20 million, effectively reducing the credit facility from $125 million to the $100 million that has already been drawn.
The company's bankers added a stipulation that Equinix convert "a significant portion" of its high-yield debt into common stock. In the past year, Equinix has retired $53 million of its high-yield bonds and $45 million in bank debt
The apparent good will of the company's lenders and bond holders may be based on the Equinix' recent sales performance, as it picked up 37 new customers to finish the second quarter with 248 customers. The company also gained 63 new orders from existing customers, including an expansion of IBM into two additional Equinix data centers.
"We had a great quarter," said Van Camp.
Significantly, for the first time in 18 months the company saw a net increase in cabinet space in its data centers, with new bookings outpacing customer churn.
"Some of the downward trends in this sector, particularly with respect to new bookings, are reversing," said Lanam.
Part of that new business may be driven by contingency planning by customers of WorldCom. But any long-term gain was offset by short-term pain, as WorldCom's bankruptcy put $800,000 in revenue in limbo, and the Chapter 11 filing by Teleglobe on May 15 sank a deal for Equinix to sell Teleglobe $1 million in surplus equipment.
The company's net loss for the second quarter was $24.6 million on revenues of $18 million, with an operating (EBITDA) loss of $6.9 million. Equinix said it still expects to turn cash flow positive from operations by the end of 2002.
Equinix, based in Mountain View, Calif., provides core Internet exchange services that allow Internet infrastructure companies, enterprises and content providers to grow, manage and control their networks.