Winstar files for Chapter 11 bankruptcy

Broadband network and service provider Winstar has voluntarily filed for Chapter 11 federal bankruptcy protection.

At the same time, it has filed a $10bn lawsuit against Lucent Technologies which alleges that Lucent breached its obligations under a strategic partnership with Winstar.

According to Winstar's legal filing, "Lucent represented that it had the expertise, personnel and financial wherewithal to undertake its obligations under the Supply Agreement. Little more than two years into the five-year agreement, Lucent has shown that its promises were hollow."

The filing also said that the alleged contract breach is what forced Winstar to file for bankruptcy.

Winstar is seeking immediate injunctive relief from a US federal bankruptcy court that would require Lucent to perform its contractual obligations, including the payment of more than $90m, Winstar said.

The company claimed that the Chapter 11 filing would not impinge on its day-to-day operations.

Under the lawsuit, Winstar said it has secured $75m of so-called debtor-in-possession financing in order to continue offering its telecom service to 30,000 business customers. The consortium of banks involved in the financing include CIBC, Citicorp, Credit Suisse First Boston, Chase and Bank of New York.

Mary Lou Ambrus, a spokeswoman for Lucent, said: "This lawsuit is absolutely frivolous and without an ounce of merit. We did not breach any of our obligations with Winstar."

Earlier this month, Winstar announced that it would halt domestic and international network expansion for the rest of the year. The company recently laid off some 2000 employees, a little less than 50 per cent of its workforce, in an attempt to save money and trim costs.

Since 1998, Lucent has had an arrangement with Winstar to provide telecoms equipment and services.