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:popcorn::beer::popcorn: " Fiorina's campaign calls comparisons of the vendor financing deals she worked on to subprime lending "disingenuous" and "almost libelous." -...." In the spring of 1999, Lucent Technology's star executive Carly Fiorina pulled off yet another coup—or so it appeared. A tiny start-up called PathNet agreed to buy huge amounts of fiber-optic gear from Lucent, a deal worth at least $440 million and potentially as much as $2.1 billion. The agreement Fiorina negotiated "potentially represents the single largest fiber supply agreement to a network operator in the U.S," according to a triumphant press release.
-....In 1997 Fiorina took over the group selling gear to such "service provider networks." The company reported that sales to such networks climbed from $15.7 billion in fiscal 1997 to $19.1 billion in 1998. In 1999 they hit an amazing $23.6 billion. In the midst of this rise Fortune named Fiorina -- then largely anonymous outside of telecom -- to the top of its first list of the country's most powerful women in business. A star was born.
As Wall Street became fixated on equipment companies' growth, the whole industry entered a manic phase. With capital easy to come by, Qwest, Worldcom and their peers laid more fiber and installed far more capacity than customers needed. Much like the housing bubble that was just beginning to inflate, easy credit fed the telecom bubble.
Lucent and its major competitors all started goosing sales by lending money to their customers. In a neat bit of accounting magic, money from the loans began to appear on Lucent's income statement as new revenue while the dicey debt got stashed on its balance sheet as an allegedly solid asset. It was nothing of the sort. Lucent said in its SEC filings that it had little choice to play the so-called vendor financing game, because all its competitors were too.
In the giant PathNet deal that Fiorina oversaw, Lucent agreed to fund more than 100% of the company's equipment purchases, meaning the small company would get both Lucent gear at no money down and extra cash to boot. Yet how could such a loan to PathNet make sense for Lucent, even based on the world as it appeared in the heady days of 1999? The smaller company had barely $100 million in equity (and that's based on generous accounting assumptions) on top of which it had already balanced $350 million in junk bonds paying 12.25% interest. Adding $440 million in loans from Lucent to this already debt-heavy capital structure would jack the company's leverage up to 8 to 1, and potentially even higher as they drew more of the loan.
Fiorina says in her autobiography that she pushed back against the pressure for short-term growth at any cost, and two former Lucent collegues with whom she remains friendly back her up. On the other hand, this 2001 Fortune story,
<http://money.cnn.com/magazines/fortune/fortune_archive/2001/02/05/296152/index.htm>
which described Lucent's irresponsible growth habits, cites sources saying Fiorina made it known that Wall Street would generously reward companies that emphasized and delivered robust revenue growth. And an executive who sat across the table from Fiorina in a big vendor financing negotiation, when asked this week about what he remembers of the bargaining, described Fiorina as being dead set on chalking up a huge sale. He adds: "The press release was always very important to her."
Whatever the exact extent of Fiorina's role, Lucent was soon sucked in deep, making big loans to sketchy customers. In an SEC document filed just after Fiorina's departure, the company revealed that it had $7 billion in loan commitments to customers -- many of them financially unstable start-ups building all manner of new networks -- of which Lucent had dispensed $1.6 billion.
Such vendor financing deals would have much the same impact on the telecom industry that sub-prime mortgages eventually had on the housing industry. In both cases public companies extended loans to customers who were gambling that the good times would keep rolling (and who were especially glad to make those bets with the lenders' money). In both cases the loans helped puff up lenders' short-term financial results and stock prices. In both cases the market inevitably turned and the pile of debt collapsed. (PathNet, after taking on another slug of vendor debt from Nortel, filed for bankruptcy protection in 2001 as the industry collapsed.)
Fiorina's campaign calls comparisons of the vendor financing deals she worked on to subprime lending "disingenuous" and "almost libelous." Adds spokeswoman Andrea Saul: "Over the past decades, Carly established herself as a successful business leader who knows how to create jobs and growth with Barbara Boxer herself praising Carly for her success in the business world and at Lucent specifically."
cont'
<http://tech.fortune.cnn.com/2010/10/15/carly-fiorinas-troubling-telecom-past/>
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