The current economic crisis may have doomed Vonage, the erstwhile darling of the Voice over Internet Protocol (VoIP) set, unless somebody antes up a quarter of billion dollars right quick.

Lost in the thunderous outpouring of news surrounding the crisis on Wall Street, the Federal government’s controversial economic salvation plan, and the presidential election: Vonage last week entered the final quarter of the year and the $253 million in survival loans Vonage thought it had nailed down back in July (TelecomWeb news break, July 24) haven’t closed yet.

Vonage last week – almost simultaneously with the Congress voting down the Wall Street salvation bill and the House heading into a two-day recess for the Jewish Holiday of Rosh Hashanah - revealed that it has extended for a third time the tender offer for its outstanding loans needed to close on the new loans. Given the timing, it’s little wonder that few if any noticed that what claims to be the largest “pure play” VoIP carrier in the United States had hit yet another problem.

Those outstanding loans are due on Dec. 16, and if Vonage can’t pay them off, the company will in all likelihood be forced into bankruptcy. The issue isn’t that the note holders aren’t willing to cash in – all of the notes have been tendered. It’s that Vonage doesn’t have the money yet to buy them back. But other than admitting that it has extended the tender offer, for a third time to Oct. 15, Vonage hasn’t disclosed why it hasn’t been able to close on the new financing and pay off its old notes. The estimate, though, is that with the current economic climate either the money has fled the coop or terms are getting a lot stiffer than what was proposed back in July.

Back then, in order to win a loan commitment 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. Now it looks like that commitment was none to firm. So far there’s been no disclosure of how much stiffer terms lenders may be demanding. In fact Vonage hasn’t even revealed if the lead lender in the deal, Silver Point Finance, is even willing to still do the financing, or whether it has managed to find needed partners to put up a big chunk of the cash, since Silver Point itself was going to put up only $125 million of the $253 million, or more, that Vonage desperately needs.

Meanwhile Vonage shares are now trading at less than $1 each, compared to the $17 at which they IPO’d (TelecomWeb news break, May 25, 2006). When last seen, at the end of June, the company had $149.6 million left in the bank, had burned through $135.4 million in the preceding 90 days, and its accumulated deficit had topped the magic $1 billion mark. At that rate, there doesn’t look like much can be left in the kitty.

Vonage signs definitive deal on debt refinancing
HOLMDEL, N.J.
Internet telephone service Vonage Holdings Corp. on Monday said it had signed a definitive deal with hedge fund Silver Point Finance LLC and other lenders to refinance its convertible debt with new credit facilities and debt worth $220.3 million.

The need for refinancing has loomed over Vonage all year, as it struggles with stagnant subscriber numbers and competition from cable company phone offerings. It signed a letter of intent for refinancing in April, but the terms have been renegotiated since then.

The Holmdel, N.J.-based company plans to use the borrowings, plus cash on hand, to buy back up to $253.5 million of its convertible notes in a tender offer that began on July 30.

The new package consists of a $130.3 million senior secured first lien credit facility, a $72 million senior secured second lien credit facility and $18 million in senior secured third lien convertible notes.

Vonage needs shareholder approval for the deal, but said has obtained binding agreements for enough votes to get it approved at a special shareholder meeting on Nov. 3.

"Today's agreement represents a significant milestone in positioning Vonage for the future," said John Rego, Vonage's chief financial officer, in a statement.

Silver Point, based in Greenwich, Conn., has a history of lending to companies in distress. It lent money to Krispy Kreme Doughnuts Inc. in 2005. Earlier this year, it lent to casino owner Tropicana Entertainment LLC.

Vonage ended June with 2.6 million subscribers.