The infrastructure sector has lost an independent player to chapter 11 bankruptcy, demonstrating that while the fiber business as a whole is pretty healthy right now it is still not an easy one. Late last week, Allied Fiber's southeastern subsidiaries declared bankruptcy in Delaware court after finding it more difficult than hoped to sell dark fiber and on its newly constructed Atlanta-Miami route.
After trying to get a route between New York, Chicago, and Washington DC running for several years, a few years back the company switched gears to put in conduit and fiber on its southeastern route. They built out 708 route miles of fiber with colo huts of about 1200 square feet every 60 miles along the way. They finished last spring, but the revenues just didn't get there soon enough.
The company had been looking at strategic alternatives for some 18 months, but didn't find what it was looking for as the finances started to crumble. According to the filing, with its buildout complete the Southeast section of the company's business finished February 2016 with $8.5M in annualized operating costs but still just $0.5M in annual recurring revenues. In March they cut those costs by firing all employees, hiring back a core group to keep things running while still seeking alternatives. They didn't find any, and thus filed for chapter 11.
Allied Fiber's business model was a unique one, and I had thought it would have better legs than it did. But in the end, what Allied did not have was a large anchor customer. Instead, they looked to line up smaller providers hungry for dark fiber to make up for it with numbers. Some did, with regional operators like Southern Light, Planters Communications, C&W Communications, and others signing on for infrastructure. But if enough customers were out there, they didn't move quickly enough to make a difference.
So now what happens? Does Allied Fiber's southeastern infrastructure emerge from the ashes intact with new owners and a new plan? Or does a suitor swoop in and pick up the assets for itself? Given the wariness the private equity guys had for the assets all along, a strategic buyer seems the more likely route to me. (And the filing indicates that a court-supervised sale is the intent.)
It isn't hard to think of a suitor. Zayo, for instance, doesn't have longhaul dark fiber on this route and isn't the least bit afraid of the dark fiber business. They've always viewed Allied Fiber's business model rather skeptically, but the assets themselves would have to seem pretty attractive once unencumbered by the debt and all that. Another possibility would be one of those regional providers who found the route of use already and specialize in infrastructure in the region. Southern Light springs to mind in that regard. Another regional player with the resources to do it would be FPL Fibernet.