Is Third Time a Charm for Vonage Debt Buyback?

In the face of viral bank failures and an imploding credit market, it's reasonable to ask whether pure-play VoIP leader Vonage can close its debt refinancing deal, given the company's bottom-line red ink and a stock price in a death spiral.

to repurchase the remainder of its in convertible notes, the Journal story said. Vonage needed to raise money for the repurchase by December 16 or risk bankruptcy

Last month Vonage extended its offer to buyback $253 million of debt for the third time, Reuters reported on September 30. The new expiration date is Oct. 15.  Vonage launched the offer last summer in conjunction with a $215 million debt refinancing deal with hedge fund Silver Point Finance.However, the Silverpoint deal has yet to close and the parties are "still in discussion," according to the Reuters report. If Vonage deosn't raise the money by December 16, the company may go under.

Although Vonage's Q2 revenue was up 11 percent from 2007 to $228 million, the company still lost $7 million — which is better than 2007's $23 million loss for the same quarter last year. Still, "losing less money than last year" isn't a confidence-inspiring message for a company that's been in business nearly eight years. 

Jon Fisher author of Strategic Entrepreneurism: Shattering the Start-Up Entrepreneurial Myths, doesn't mince words about Vonage's prospects in the current climate — or any other, for that matter. Fisher has led three startups in the past 15 years, through booms and busts, and his most recent venture, Internet security firm Bharosa, was acquired by Oracle in 2007. One of his truisms is, "If you don't have a P&L that makes sense, you're in trouble."

"Vonage loses money quarter after quarter and year after year, and therefore I don't consider Vonage to be a company — or at least a for-profit company," he wrote in an email.

"It's companies like these that will have the most trouble attracting or refinancing capital in the wake of an unprecedented credit and liquidity crunch and I say that's a good thing. The biggest problem we have in this country is using debt to keep companies in business that are not companies."

Tough words. Then again, these are tough times.