UTStarcom faces default on 7/8% convertibles after 60-day grace period in light of delayed 10-K filing

By Caroline Salls

Pittsburgh, March 16 - UTStarcom, Inc.'s delay in filing its 10-K annual report for the fiscal year ended Dec. 31 with the Securities and Exchange Commission will prompt a default under the indenture for the $274.6 million outstanding of its 7/8% convertible subordinated notes due March 1, 2008 if the 10-K report is not filed within a 60-day grace period, according to a NT 10-K filing with the Securities and Exchange Commission.

Under the convertibles' indenture, neither the trustee nor the holders of at least 25% of the outstanding principal amount of the notes can accelerate their maturity unless the company fails to file and deliver its 10-K report within 60 days after the company has received notice of default.

Failure to file would trigger a cross-default under the company's credit facilities, and lenders would be able to accelerate any of the company's loans that exceed $30 million and are not paid or discharged within 30 days after notice of default.

Also, as of Dec. 31, the company's subsidiaries in the People's Republic of China had about $199 million of short-term borrowings outstanding under their local China lines of credit. The company said it is reviewing the credit lines and the loan agreements on its subsidiaries' outstanding borrowings to verify that the untimely filing of the 10-K report would not result in a breach or event of default.

If UTStarcom determines that a breach or event of default has occurred under any of its China lines of credit or loan agreements, it will request a temporary waiver to permit the continued access to the line or loan agreement until the company files the 10-K report.

The company will also request a temporary waiver from Citibank, NA under its $100 million committed receivables purchase agreement.

UTStarcom said the delay in filing the 10-K report will allow the audit committee of its board of directors to complete an investigation of the circumstances surrounding the premature recognition of revenue on a contract with a customer in India and to allow management to complete the preparation of its 2005 consolidated financial statements and its assessment of its internal control over financial reporting.

The Alameda, Calif.-based company manufactures IP-based products for telecommunications service providers.

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