US cloud pusher Fusion Connect hits ice after double-merger debt pile-on, files for chapter 11

'Underperformance', liquidity problems fingered, vendor relationships 'increasingly strained'

American cloud peddler Fusion Connect has filed for Chapter 11 bankruptcy protection, after entering a series of risky mergers and accumulating more debt than it could hope to repay.

The company borrowed $680m in 2018 to fund for two mergers in two months, absorbing its competitors Birch Communications and MegaPath Cloud. As of 3 June 2019, Fusion Connect's debt stood at $691.5m.

"Unfortunately, due to underperformance compared to business projections, the company found itself with limited liquidity and at risk of default under its debt documents by early 2019," Keith Soldan, CFO of Fusion and former veep of Birch, wrote in the court filing [PDF].

"While the company was able to improve operations and use the Birch Merger as a platform for expansion, the Birch business plan proved to be overly aggressive in terms of sustained customer bookings and price increases. Missed revenue projections left the company with significantly less liquidity than originally anticipated," he said.

The company's relationships with many of its vendors have become increasingly strained. Several of these vendors are vital to the company's ongoing operations

"As a result, the company's relationships with many of its vendors have become increasingly strained. Several of these vendors are vital to the company's ongoing operations," he added.

Fusion will attempt to recover investor funds by selling the company in a court-supervised auction, while attempting to extinguish $300m. Soldan said the company had already approached more than 40 potential investors.

If the auction doesn't yield the desired outcome, the company will be taken over by senior lenders, who are collectively owed around $574m.

New York-based Fusion was established in 1997 as a network carrier and ISP. It went public in 2005. The company was delisted from Nasdaq last month, because it failed to file the annual stockholder report on time.

Fusion operates a nationwide IP/MPLS network and has 12 offices across North America. In terms of infrastructure, it runs 18 points of presence, two network operations centres (NOCs) and nine data centres selling colocation and cloud services. ®

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