Over the past three years, a slew of broadband service providers sought bankruptcy protection. Invariably, their executives vowed to return with a cleansed balance sheet, solid network and a workable plan to produce profit.
It didn’t always work that way. For more than a few petitioners, Chapter 11 was little more than a stop-over en route to a Chapter 7 filing and total liquidation.
That’s why XO Communications‘ announcement late yesterday that it had cleared the final hurdle in the process, approval of its reorganization plan by a U.S. Bankruptcy Court judge, is so noteworthy.
“This is a brand new day for XO,” said interim president and CEO Nate Davis, who thanked customers and employees the Reston, Va., company for their support during the seven-month-long process.
XO now carries only $500 million in long-term debt, down from $5.1 billion, and will not be required to make cash interest payment until it hits certain financial targets. As of September 30, 2002, XO had $554 million in cash and cash equivalents.
Carl Icahn, the billionaire financier, now owns about 80 percent of the company. Ichan said XO, which provides voice, Internet access, virtual private networking (VPN) and Web hosting to business customers in 60 metro markets, will not be timid about growth.
“The telecommunications sector continues to provide significant opportunities to acquire undervalued assets and customers and integrate them with XO’s world-class operations and assets,” Ichan said.
Similar startegies appear to be working for other telecom survivors. DSL provider Covad Communications has been picking up customers and assets of its failed competitors since it successfully emerged from Chapter 11 about a year ago.
DSL.net has done the same, expanding its East Coast coverage by picking up accounts from other firms that were unable to manage their debts.
Then, there is Level 3 Communications, which is progressing toward the purchase of assets and accounts from network infrastructure giant Genuity, which filed for bankruptcy protection last year.
As far as management structure, Ichan has assumed the chairman’s post. Daniel F. Akerson said last month he would step down as chairman and CEO when the company emerged from bankruptcy.
Davis will serve as president and CEO until a permanent replacement is named. Ichan will make that selection and a search is underway, an XO spokewoman said.
Akerson arrived during the telecommunications boom: startups went public weekly (regardless of whether they had products or profits), vast fiber-optic systems were constructed worldwide, and predictions for voice and data traffic rose exponentially with each new industry report.
Reality, in the form of an economic recession, set in about 18 months later. Carriers, who took loans to build out their infrastructure, suddenly found themselves unable to pay. Many, including XO, were forced to file for Chapter 11 bankruptcy protection.
Now that XO has emerged from the sticky bankruptcy process, it will still have to deal with a lagging telecom market. But the good news for the company is that it is no longer creaking under its debt.