Friday, July 25, 2008

Vonage Survives ... for now

Ike Elliott, TMC and Telecomweb have articles about Vonage this week. They refinanced the debt and are looking for a new CEO. (How Citron has been able to hold his office this long is beyond me. He was sanctioned by the SEC years ago and supposedly was not allowed to hold office in a public company. The federal agencies do NOT perform their enforcement roles well at all, which explains the state of the union.)

The Re-Fi was done through what we call a Loanshark, I mean, Private Equity with 15% vig that will increase. Telecomweb has all th edetails and Ike expands on it, but basically the re-fi screws the pooch too.

"Vonage has some $253 million in convertible notes that can be put to the company right before the holidays [Dec. '08] and, if it doesn't pay up, no more Vonage. However, in order to win a loan to re-finance that debt, the carrier had to swallow terms that include issuing senior secured debt, paying a variable-interest rate that looks like it will start in the neighborhood of 15 percent with no upward limit, and spending between $21 million and $24 million in fees and expenses. Vonage had announced a financing deal months ago, but the deadline passed with no commitment.
Here's the problem in a nutshell: Vonage doesn't have anywhere near $253 million left in the piggy bank. As of the end of the first quarter, it had only $189.8 million in cash, cash equivalents and marketable securities; only $148.3 million of that was readily available (TelecomWeb news break, May 8). Its current cash position should be known in another couple of weeks, when it reports its next quarter. And unless it's staged a magic turnaround, it will be even deeper in hock. Vonage may have to use some of whatever cash it still has - or find additional debt. Its new financing, Vonage says, won't even cover all $253 million, so the question is: What happens next? [telecomweb]

Could be worse... Have you seen the Infomercials for MagicJack? Jon Price saw David Isenberg hawking MagicJack on one of them!

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