XO’s Forbearance Agreements Expire

XO Communications, Inc. says despite the fact that its forbearance agreements with its creditors have expired, the company expects its lenders not to take any action against the troubled broadband provider as it continues to work on a restructuring deal.

Strapped for cash, In January, the Reston, Va.-based 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 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 in an effort to pressure stockholders into accepting the Forstmann-TelMex offer.

In early March, the proposed deal became even murkier when billionaire investor Carl Icahn, who, along with two other unnamed parties hold $1 billion of XO’s debt, urged stockholders to reject the Forstmann-TelMex offer.

Meanwhile, on Monday, XO’s forbearance agreements with its creditors expired. Under the forbearance agreement, the lenders had agreed, subject to certain conditions, not to exercise their remedies under the credit facility with respect to certain cross default events and fourth quarter 2001 minimum revenue covenants.

“Presently, we are continuing our discussions with our lending institutions, holders of our senior unsecured notes and prospective investors — including the investment group being led by Carl Icahn. These actions are consistent with the terms of our definitive investment agreement with Forstmann Little & Co. and Telefonos de Mexico S.A. de C.V. which continues to be in full force and effect,” the company said in a statement issued Tuesday morning. “We are making progress in the negotiations with the Icahn-led investment group and we are in active discussions with the lending institutions under our senior credit facility and the senior noteholders with a goal of reaching an agreement on the terms of an investment and related balance sheet restructuring. As the lending institutions are actively involved with these discussions, they have indicated to XO that, despite the expiration of the forbearance agreement, they do not intend to take any additional action with respect to the enforcement of their rights under the secured credit facility so long as satisfactory progress on the restructuring continues to be made.”

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