Genuity, Inc., a telecommunications company and major provider of the backbone fiber optics for the Internet, filed for bankruptcy protection on Wednesday, November 27, 2002. Genuity was previously spun off as required by federal regulators before they would approve the merger agreement between GTE and Bell Atlantic. The new company that was created, Verizon, was granted a stake in Genuity with an option to take Genuity back by 2005. Verizon, not flush with cash itself, declined to exercise the option to regain control of Genuity, which resulted in Genuity's default of a $2 billion line of credit. While Genuity managed to pay back more than $200 million and negotiated for months with lenders and with Verizon, a settlement was not reached prior to Genuity's filing for bankruptcy.
As part of the bankruptcy filing, Genuity has agreed to transfer its assets to Level 3 Communications, Inc. of Broomfield, Colorado in a deal reported to be worth $242 million. The companies said Level 3 would continue to operate Genuity as a separate business and that it would remain based in Woburn, Massachusetts. If the Bankruptcy Court approves the plan, Genuity creditors will divide Level 3's $242 million, plus any remaining cash on Genuity's balance sheet after operations have been paid. Genuity reportedly has $800 million in cash.