In mid-February, Hackensack-headquartered Wave2Wave Communications, a Delaware-incorporated wireless broadband and voice solutions provider, filed for Chapter 11 protection in U.S. District Court in Newark. In the initial filing Steven Asman, president and chairman of the board, certified the company’s estimated assets to be between $50 million and $100 million but stated that its liabilities were the same. At the same time Wave2Wave filed, it filed for two of its subsidiaries, RNK Inc. and RNK VA LLC.
Before disaster struck, Wave2Wave had been planning an IPO, but it had repeatedly lowered its price target, reportedly going from $91 million to $14 million. According to reports, the company had asked the SEC to withdraw the IPO in both December and March 2011, but the SEC refused to do so. The SEC didn’t give a reason, stating only that withdrawing the IPO wasn’t consistent with the interests and protection of investors. At the time The Wall Street Journal reported that the SEC’s move was one that hadn’t “been seen for years.” The SEC’s refusal effectively blocked Wave2Wave “from using its planned IPO structure for a private placement.”
So what happened to Wave2Wave? In court documents obtained by NJTechWeekly.com, CEO Aaron Dobrinsky outlined the firm’s path to Chapter 11. It all began with the company’s acquisition of RNK in 2007 in an effort to expand into the local exchange and interchange carrier market. Less than a year after Wave2Wave acquired the company, Verizon Services Corp. filed a suit against RNK over reciprocal compensation charges and access charges in N.Y., Mass. and R.I. As that dispute continued, Verizon placed a majority of the monthly payments it owed RNK in escrow toward an “alleged balance” of more than $4 million.
This move “placed a significant strain” on Wave2Wave’s liquidity, the company claimed. In September 2011, Verizon and RNK negotiated a settlement agreement, and Wave2Wave was scheduled to make payments over time based on that agreement. In early January 2012, with liquidity continuing to be strained, Wave2Wave missed a payment to Verizon, and Verizon issued a default warning. No progress was made in an attempt to modify the payment agreement, Wave2Wave said in its filings, and on Feb. 16 Verizon demanded payment of $3.25 million. When Wave2Wave, which had been negotiating a bridge loan, was unable to comply, “Verizon threatened to embargo and disconnect its services to the Debtors.” In fact, Verizon notified Wave2Wave that the carrier had issued service disconnect notices in all states in which Wave2Wave operated, to take effect February 17.
In its documents, Wave2Wave pointed to adverse changes caused by the overhaul of the intercarrier compensation system—the way payments from one carrier to another for jointly providing communications services are handled—by the FCC and several state public utility commissions. In February 2011 the FCC reduced the rates carriers could charge each other. In addition, several states, including N.J., decreased intrastate access charges. This action is being litigated in N.J., the documents said.