April 09, 2003
The Terremark Rollercoaster
Few Internet infrastructure companies have been as ambitious or as determined as Terremark WorldWide, the Miami-based builder of the NAP of the Americas. Before April is over, we'll likely know whether Terremark is here for the long haul or will wind up as another casualty of the overbuilding boom. In the past week, there's been good news and bad news for the company.
The April 1 announcement of an agreement to restructure the company's primary bank loan appeared, at first blush, to be good news. But it turns out the agreement hinges on Terremark raising $15 million in new capital before April 30, as well as a complex deal in which a group of Terremark shareholders are seeking to buy the company's trade debt and swap it for shares of common stock.
These efforts are complicated by the fact that, according to the company's SEC filings, Terremark is currently in default on $22.6 million in trade debt, $14.9 million in convertible debt, a $1 million funding agreement with MedNap, and $686,000 in bank debt. The company was also unable to pay rent on the Technology Center of the Americas (TECOTA) for January or February, according to SEC documents, and owes $550,000 for those two months. Terremark leases space at TECOTA, a 750,000 square foot Miami data center facility, where it maintains the NAP of the Americas.
Raising $15 million in less than 30 days with that kind of recent history would seem to be a longshot. But Terremark has shown an uncanny knack for using its common stock to raise money or reduce debt. A number of these deals have valued Terremark common stock at 75 cents a share, as does the current offer to buy debt owed to Cupertino Electric and Kinetics. The market has different ideas, as TWW shares have been trading around 40 cents, and even as low as 22 cents.
Then there's Friday's announcement that Terremark had won three government contracts from the Department of State to connect overseas facilities. It seems like a big vote of confidence for a company on shaky financial ground.
How can you explain all this? Do these government agencies and 75-cent-a-share investors know something the rest of the world doesn't? A possible clue might be found in the Jan. 9 release announcing a strategic partnership between Terremark and Hewlett Packard. It notes that the deal will provide Terremark with access to HP customers, products and "its finance capabilities." Is HP a candidate to step forward and bail out its new partner with the crucial $15 million? Stay tuned. We should know more by Ocean Bank's April 30 deadline.
Posted by RichM at April 9, 2003 11:04 AMTerremark's financial situation underscores the need for colo and meet me room service providers to own the underlying real estate. To me the most immediate problem is the two months of missed rental payments. This could result in a quick eviction by the landlord. If that happens, then both the debt holders and shareholders are basically left with little or no assets to collect on.
Posted by: John Wilson at April 9, 2003 05:27 PMThe numbers from the sec filings are over 90 days old.
You see all good news after.
Posted by: Ken Hutchinson at April 9, 2003 09:56 PMI think it's easy to be negative. you hit on some of the positives in the article. They have a track record of pulling off miracles. The market went bust just as they opened their doors. Right now they are the only mega-colo hotel in the area really. If they address some of their weaknesses they could have an explosion in growth. Exchange points usually hit a critical mass and then become hugely profitable. Till then it's really a slug feast of convincing people to take a chance on the future value proposition of your location. That is a tough pitch to make in today's environment. The government's vote of confidence is a big hint, usually critical infrastructure rarely goes into locations that dont seem viable looking out 5-15years.
You also have to look at their unique space. They have positioned themselves as the major future exchange pt (company) for latin america. That market has lagged the USA. Growth is starting to come back. They can start to also export their technology to other locations in latin america.
As stated they seem to be a survivor.
Posted by: david diaz at April 10, 2003 12:04 PMFor all intents and purposes, they are the "only game in town"! And, they are achieving success in an extremely hostile environment. I believe, that with all their financial problems, TerreMark offers a much needed service at the most appropriate of times; a secure environment with connectivity to the world!
Posted by: Ralph DeLuca at April 21, 2003 05:59 PM