NorVergence Up-Date--$100 Million

   by Christopher Menkin

Leasing News presented the  Chapter 7 bankruptcy documents in its last issue, stating Chapter 11 was next. Last week Bankruptcy Court hearing in Newark Jersey their attorney Bruce Buechler said NorVergence "is going to be a Chapter 11 case in a matter of days." He said they were being pushed into full dissolution and not re-organization due to mounting pressure from creditors. He also told the judge the company “... has fired "90-plus percent" of its staff and needs time to reorganize.

NorVergence did acknowledge in court owing $30 million, which does not include any contingent liability they may have regarding leases they have discounted or sold to banks and other financial institutions.  Should the servicing discontinue or telephone companies turn the lines off, the banks and financial institutions also may have claims against NorVergence which may reach into $100 million dollars. How it can survive without the ability to lay off its leasing contracts to gullible third parties is not known.

Meanwhile asset back journals are reporting to their subscribers how it really happened, and what to look out for.

                 Here are three of the latest reports:

The first, from the “New Jersey Star-Ledger:”

Judge Rosemary Gambardella gave NorVergence until 10 a.m. Wednesday, when another hearing is scheduled, to address how it will tackle mounting debts and pending Chapter 11 status.

Lawyers for Denver-based Qwest, which is owed $15 million by NorVergence acknowledged receiving $1.1 million from the company shortly before the hearing. But Qwest's lawyer, Jack Zackin, said the telecom giant needed to be paid in full.

NorVergence's attorneys and some of its other creditors argued that granting Qwest's motion to end its agreement would doom NorVergence. It would also allow Qwest to terminate service to thousands of NorVergence customers without warning.

In addition to Quest, Sprint and T-Mobile are among the $30 millions that NorVergence acknowledged in court that it owes.

In addition to representatives from some of NorVergence's creditors, approximately 20 former employees came to yesterday's hearing. Dressed casually, a handful of the employees complained about bounced and missing paychecks.

"I hear these large companies throwing out large numbers out there," said Charles Brown, a former employee. "I just want what is owed to me."

It was reported Peter Salzano, NorVergence's chief executive, showed no emotion during the hearing. As former employees spoke, Salzano sat stone-faced behind Buechler, his hands crossed and his head cocked to the left.

He had no comment after the proceedings.

Employees have been making known their feelings on the New Jersey Channel 11 web site.

Qwest Communications continues to seek its attempt to sever its ties with NorVergence. Had the Denver-based company succeeded, many of the services NorVergence provides would no longer be active, which would have resulted in lost service for NorVergence's customers.

Judge Rosemary Gambardella gave NorVergence until 10 a.m. this Wednesday, when another hearing is scheduled, to address how it will tackle mounting debts and pending Chapter 11 status.

Meanwhile, those who have purchased leases from NorVergence have stated they will not be buying any more contracts, leading NorVergence in a “catch 22” position of not being able to generate new revenues, thus not being able to forestall a Chapter 11 proceeding, which Leasing News predicted in the first reporting of the story.

(please see remarks from readers in our eMail, which we have been receiving similar ones for almost two years.  editor)

                         The Telecom Agents Association:

“Fax TAA Information About Your Equipment Leasing Company Are you a Norvergence customer wondering about the status of your equipment lease? TAA is assisting several attorneys look into the validity of the leases in light of Norvergence's financial challenges. Please fax to TAA at 909-494-4257 the identity and contact information of your leasing company. Please include any notes about anything that seems peculiar to you about how the lease was transferred from Norvergence to the leasing company.”

To learn more, you should join “free” the Telecom Agents Association.  They believe information they disseminate should go to members and thus they avoid general liabilities for their opinions:

http://www.telecomagent.org/index.htm

The third:  Asset-Backed Alert ( www.ABAAlert.com) gives their industry view point, and the story is very interesting to read:

Telecom Firm's Bankruptcy Nixes Offering

A Brecksville, Ohio, equipment lender indefinitely postponed its debut securitization last week, after learning that a troubled client had tainted the collateral pool.

Preferred Capital was about to float its Rule-144A offering when it found out that Newark, N.J., telecommunications outfit NorVergence was being forced into Chapter 11 bankruptcy protection by three creditors. A third of the collateral for Preferred Capital's deal consisted of loans that it wrote to finance NorVergence then sold the equipment to small-and mid-sized corporate customers.

        Preferred Capital would have used proceeds from the securitization to pay off a warehouse line form Huntington Bank.

        Five-year-old NorVergence sold its equipment packages at discounted prices – in hopes that it could drum enough business so that manufacturers and telecommunications carriers would eventually drop their prices. Ultimately, that belief turned out to be wrong. Over the past year, the company became involved in lawsuits with more than a dozen creditors. NorVergence's troubles came to a head on June 30, when Popular Leasing, ALFA Financial division OFC Capital and Partners Equity Capital petitioned a New Jersey bankruptcy court to place it in involuntary bankruptcy. NorVergence has 30 days to dispute the request.

        Preferred Capital does not appeared to be involved in any of the actions against NorVergence, which laid off most of its employees last week.

        Sources said it's likely that other term securitizations and commercial-paper conduit issues contain some loans to NorVergence and its vendors and suppliers, although not in large enough quantities to affect any deal's credit-enhancement levels. All told, those credits probably total less that $150 million. The volume and status of payments owed to Preferred Capital could not be learned.

        The cancellation of Preferred Capital's deal comes at a time when the market for equipment-related bonds is in the dumps, largely because of the DVI Financial scandal. Lenders that rely on securitization are responding by tightening their credit standards or fleeing the market altogether, and investors aren't showing much demand for the issues that do make it to the market.