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Icahn Opposes XO Restructuring Deal

Billionaire investor Carl Icahn said Thursday night he is opposed to XO Communications Inc.'s proposed restructuring plan that the broadband carrier says would keep it from filing for bankruptcy. Icahn, it turns out, has a keen interest in the Reston, Va.-based company. He and two still unnamed parties hold $1 billion of the company's debt.

In January, XO reached a definitive agreement with Forstmann Little & Co. and Telefonos de Mexico S.A. de C.V. (TelMex), Mexico's largest telecommunications firm, on the terms of their previously announced intention to invest $400 million each in XO in exchange for new equity in the company.

Following the balance sheet restructuring, Forstmann Little and TelMex will each own 39 percent of the company's outstanding equity. The remaining equity, other than that allocated to the company's employees, is expected to be held primarily by holders of the company's senior notes. Consequently, current holders of the company's equity securities are expected to lose substantially all of the value of their investment as a result of the restructuring.

XO has had trouble selling that deal, though, and has threatened to file to bankruptcy, perhaps as early as next week, in an effort to pressure stockholders into accepting the Forstmann-TelMex offer.

Icahn stepped into the controversy Thursday night by issuing a press release urging noteholders to reject the XO restructuring plan. One press report said Icahn is preparing his own bailout plan for XO.

"XO has reviewed the press release issued by Mr. Icahn announcing his opposition to XO's proposed debt restructuring in connection with the investment by Forstmann Little & Co. and Telefonos de Mexico S.A. de C.V. (TELMEX)," XO responded in its own press release. "As previously announced, XO has reached a definitive agreement under which Forstmann Little and TelMex would invest $800 million in the company subject to the satisfaction of specified conditions including the completion of a balance sheet restructuring."

The XO release added, "To date, XO has not received any alternative funding or restructuring proposals from any other party, despite the aggressive marketing of the investment opportunity to a wide variety of financial and strategic investors during the last several months by Houlihan Lokey Howard & Zukin, the investment banking firm hired to assist XO in its efforts to secure necessary funding. In these circumstances, XO will continue to pursue the transactions under the definitive agreement with Forstmann Little and TelMex to complete its financial restructuring and raise the funding needed to secure the company's financial future."