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Tuesday, 17 March 2009 04:03

Primus US parent files for Chapter 11 with debts of AUD$1 billion

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Primus Telecommunications Group, the US holding company of Primus Telecom Australia has filed for Chapter 11 protection to reduce interest rate payments to creditors on debts totalling US$650 million (about AUD$1 billion). The consensual Chapter 11 filing with creditors will see the debts reduced to US$315 million.

Primus Telecom Australia CEO Ravi Bhatia told iTWire that the restructuring of the holding company's debt would reduce the load on the profitable Australian subsidiary in contributing to interest payments.

At one stage the debt to creditors was US$1.4 billion, which the company paid down by half to US$650 million and this latest Chapter 11 filing would reduce the debt to US$315 million, said Mr Bhatia. The interest on the debts will be cut from US$65 million to US$30 million a year, he added.

Mr Bhatia said the Australian company made a gross profit of $130 million last year and was "holding up well this year".

"We're highly profitable and we were supporting the interest rate obligations of the holding company," said Mr Bhatia.

"The interest obligations of the holding company have reduced by 50 percent so that means we have to send them less and more cash is available for local investment."

Mr Bhatia said Primus Australia at one stage was sending one third of the US$65 million a year debt interest to its US parent to support the debt. Now it will be cut to one third of AUD$30 million a year in interest payments support, to about AUD$10 million.

"It was a hell of a lot," said Mr Bhatia.

"The business in Australia generated a gross profit of $130 million Aussie and we're the only telco who is not sending jobs overseas, we don't outsource and we won't be letting go of people here. This year is so far so good - we're holding up pretty well."

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Mr Bhatia said it was important to differentiate between the different types of Chapter 11 bankruptcy filings.

"There is voluntary, consensual and forced. This is consensual between Primus and its bond holders," Mr Bhatia said.

“This is good news for Primus Australia because it results in increasing Primus Australia’s ability to re-invest in our local operations,” said Mr Bhatia.  “Since it was granted a license to operate in 1997, Primus has invested over $500 million in its network facilities in Australia.

“Primus Australia is a solidly profitable business that generates significant positive cash flow, making us financially independent and self sufficient,” Mr. Bhatia said. “No employees, customers, suppliers or business partners in Australia will be affected in any way by the financial restructuring activities of the U.S. holding company and there will be no loss jobs in Australia.

“We expect only to benefit from the restructuring since a large portion of local profits that were used in part to service the U.S. holding company’s debt may now be available for investment in organic expansion as well as acquisitions of synergistic telecom businesses throughout Australia.  It is a ‘win-win’ situation for the U.S. holding company and its bondholders, as well as Primus Australia and its customers, vendors and business partners in Australia.”    

Primus Australia’s network offers nationwide coverage through its own backbone network with facilities in 66 POIs and 282 DSLAMs across Australia, as well as nationwide long-distance telephone and high speed broadband services.  In addition, Primus operates its own fibre network in the five major capital cities, delivering a range services to residential and business customers including direct-connect services, ISDN, telephone, broadband, Ethernet and hosting services.

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Stan Beer

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Stan Beer co-founded iTWire in 2005. With 35 plus years of experience working in IT and Australian technology media, Beer has published articles in most of the IT publications that have mattered, including the AFR, The Australian, SMH, The Age, as well as a multitude of trade publications.

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