(News & Observer (Raleigh, NC) Via Acquire Media NewsEdge) April 28--Connexion Technologies, the struggling business founded and led by former Cary Mayor Glen Lang, has filed for bankruptcy protection.
Cary-based Capitol Infrastructure, which does business as Connexion, is seeking to restructure its debt under Chapter 11 of the federal bankruptcy code, according to a filing made Thursday in a Delaware federal court.
"We have a liquidity crisis, and we can't meet all our financial obligations," said Matt Springer, executive vice president of corporate development. He added that the company, which has laid off two-thirds of its staff in recent months, is maintaining its operations while it tries to sell some or all of its assets.
The bankruptcy filing, which also includes a dozen affiliates and subsidiaries, lists liabilities between $100 million and $500 million. The company has about 175 employees after laying off about 350 workers in three rounds of layoffs that began in late January.
Connexion builds and manages telecommunication networks for residential communities nationwide. In 2009 and 2010 it was ranked by Inc. magazine among the nation's 500 fastest-growing privately held companies. Last year it generated $69.2 million in revenue.
But the company, which has always borrowed heavily to expand its business, hit a wall this year because of several factors, CEO Lang stated in court documents.
DirecTV contracts canceled
Subscribers for the satellite TV, Internet and phone service that the company sells didn't grow as fast as anticipated. Its prime provider of those services, DirecTV, "unilaterally terminated multiple contracts" with the company in February. And the company -- which last year obtained more than $100 million in loans from three banks and an investment firm -- couldn't obtain additional financing.
Springer declined to provide details of DirecTV's contract terminations, which the company is disputing.
"That's a private matter," Springer said. "We have nothing bad to say about DirecTV. We still work very closely with them on a daily basis."
Earlier this week DirecTV, which is owned $2.4 million according to the bankruptcy filing, issued a statement that said it was working with Connexion to ensure that service to DirecTV subscribers was uninterrupted. It, too, has declined to provide details about the dispute.
Lang also wrote that the company's fortunes first began deteriorating when the national real estate market tanked.
Up to that point the company was focused on providing services for newly built residential communities. After the real estate crisis, many of the new communities Connexion was working with "were left incomplete by the property developers or, even if they were completed, housed insufficient numbers of occupants for extended periods of time to enable the property to operate profitably," Lang stated in court papers.
$475M from Reedy Creek
Connexion's expansion also was fueled in part by a $475 million line of credit extended in 2007 by Reedy Creek Investments, a limited liability company whose investors include the co-founders of business software giant SAS, billionaires Jim Goodnight and John Sall. Reedy Creek isn't part of SAS.
Springer said Connexion ended up borrowing "a substantial portion" of that amount from Reedy Creek. Don Parker, a Reedy Creek manager who is not an investor in the firm, declined to provide additional details on how much is owed.
"You make loans," Parker said. "Some of them turn out to be good, and some of them don't. This is one that didn't turn out like we hoped it would."
"The company was doing fairly well until the real estate market crashed and they had to change their mode of business," Parker added. After the recession hit, Connexion focused on providing services to residents of existing communities rather than new ones.
Parker said that the money loaned to Connexion is secured by certain assets.
"We do hope that, through this bankruptcy process, we will recover something toward our loan," he said. "I can't guess what that percentage might be."
Although the bankruptcy filing at one point describes Reedy Creek as the company's "lead investor," Parker said that was erroneous. Reedy Creek was a "passive lender," with no say in the company's management and no ownership stake, he said.
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