The demise of Connexion Inc., one of the largest fulfillment contractors in the cable industry, could be a simple case of expanding too quickly.
But former employees of the company, which did business under the General Fiber Communications Inc. and MetroTec Communications Inc. names, painted a picture last week of a company that lost its way soon after its CEO abruptly resigned, severing long-time relationships with major MSOs with little or no notice, failing to pay employees for work performed and sending the once-healthy contractor into a tailspin.
Connexion, based in Conshohocken, Pa., filed for Chapter 11 bankruptcy protection on July 8.
WENT FROM '11' TO '7'
A day later the company converted that to a Chapter 7 liquidation after it could not reach a financing deal with its banks.
In its bankruptcy filing, Connexion listed assets of $45 million and liabilities of $84 million.
The bulk of those liabilities are bank debt — Connexion said in the filing it owes $7.1 million to Citizens Bank of Pennsylvania and $51.7 million to Madeleine LLC.
The bankruptcy brings to an end what had been an aggressive growth plan for Connexion.
Connexion was formed in 2002 when Pennsylvania private-equity firm TenX Capital purchased the assets of bankrupt cable contractor International FiberCom Inc. for about $20 million. Shortly after the International FiberCom deal, TenX was purchased by New York private-equity giant Cerberus Capital Management.
Cerberus manages about $14 billion in assets and owns controlling interests in more than 40 companies, including ACE Aviation Holdings Inc., the parent of Air Canada, and ANC Rental Corp., the parent of the Alamo and National car-rental companies.
Connexion soon embarked on an acquisition spree, buying small fulfillment contractors in a flurry of deals — five in 2003 and another nine in 2004. By the end of 2004, it had nearly 2,000 employees.
Those numbers dwindled to about 900 workers in 14 states by the time Connexion filed for bankruptcy protection. In its bankruptcy filing, Connexion said it provided fulfillment services for most of the major MSOs: Comcast Corp., Time Warner Cable, Adelphia Communications Corp., Charter Communications Inc., Cablevision Systems Corp. and Cox Communications Inc.
2M ANNUAL INSTALLS
According to the bankruptcy-court document, Connexion performed about 2 million installations per year and fielded about 200,000 service calls per month for customers.
The cable-contractor business is admittedly a volatile one — ViaSource Communications Inc., once one of the largest cable construction contractors in the industry, filed for Chapter 11 bankruptcy in 2001 after a disappointing initial public offering and plans to expand fizzled out. It was sold to Canadian outsourcer 180 Connect in 2002.
There is little doubt that Connexion's aggressive expansion plans played a role in its decision to file for bankruptcy protection earlier this month.
But according to several former employees contacted for this article, Connexion started to go downhill shortly after its CEO, Murat Aslansan, resigned in March.
One former General Fiber employee who asked not to be named said GFC started shutting operations across the country in an effort to keep down costs in May, closing an Atlanta operation followed by operations in Nashville and Little Rock, Ark.
While employees were told that all was well, some said that MSO customers were never told in advance that these operations would cease.
According to one MSO source that asked not to be named, a GFC executive had told them prior to the bankruptcy that the contractor was having short-term cash flow problems and asked if they could get a little help from the MSO — in other words, expedite payment on invoices.
“We had arranged for that; we were working out the handoff details,” the MSO source said. “An hour later we learned that everyone had gone.”
In the meantime, as those cable operators were looking for technicians to fulfill install orders, others were re-evaluating their relationship with General Fiber.
CORD CUT IN HOUSTON
Former GFC employees said that one customer, Time Warner Cable's Houston system, decided to end its contract with GFC before it, too, was left in the lurch.
Time Warner's Houston system was one of GFC's largest customers, those employees said, with more than 200 trucks at that location.
Time Warner Cable Houston spokesman Craig D'Agostini declined to comment on the circumstances surrounding the MSO's termination of its contract with GFC. But D'Agostini said the contract was terminated “abruptly” on July 1.
Adelphia Communications Corp. had used about 40 techs from GFC in its California systems, said company spokeswoman Erica Stull.
“They did leave us high and dry,” Stull said, referring to the bankruptcy, adding that the work has been picked up by other contractors.
The former employees appeared to be most angered by the suddenness of the bankruptcy.
According to several former workers for GFC, employees were not paid for as much as three weeks work prior to the bankruptcy filing and several said reimbursement checks for expenses from the company were returned for insufficient funds — one said that he was stuck with $15,000 in unreimbursed expenses.
Connexion's bankruptcy lawyer, Steven Wilamowsky, did not return calls for comment.
According to bankruptcy court documents, U.S. Trustee Lori Lapin Jones has asked that the court authorize $100,000 in cash collateral and about 5,800 shares of MCI Corp. stock owned by Connexion (worth about $150,000) be used to change locks on facilities, pay leases and some expenses like payroll.
However, it is unlikely that Connexion's unpaid former employees will see any of that money. According to court documents, those payroll funds will be used to retain a small staff to maintain Connexion's financial records. Lapin Jones did not return calls for comment.
