Debt-ridden XO Communications Inc. is the latest inductee to the competitive
broadband-network Chapter 11 club.
The Reston, Va.-based
broadband-communications-services company, which does business in 65 U.S.
markets, announced Monday that it has filed for reorganizational bankruptcy in
the U.S. Bankruptcy Court for the Southern District of New York.
The filing affects only the parent company, so all of its subsidiaries are
expected to keep operating during the bankruptcy process and no cutbacks in
service or staff are planned, according to the company's announcement.
But there are already signs that the process may not be smooth.
XO's plan banks on an agreement forged last year with Forstmann Little &
Co and Mexican telco Teléfonos de México S.A. de C.V. (Telmex) to each kick in
$400 million toward a restructuring.
But now those two companies have indicated that they no longer think XO can
meet its end of the bargain, and they plan to terminate the agreement.
While XO officials said Forstmann and Telmex can't do so unilaterally, it
nevertheless has a fallback plan for restructuring on its own.
That plan would restructure some $1 billion in debt, converting it into
common equity and $500 million of pay-in-kind junior secured debt.
An informal steering committee represented by lenders has indicated that it
would support that alternative, according to the company.
'We believe that our investment agreement with Forstmann Little and Telmex
continues in full force and effect and provides for better overall economic
recoveries for our creditors,' XO chairman and CEO Dan Akerson said in a
'While we have every intention of enforcing our rights under this agreement,
we are also prepared to move forward with a stand-alone plan that provides
clarity and assures our customers, vendors and employees that the company is
moving forward with a plan that will achieve our goal of restructuring our
balance sheet and providing the necessary financial stability for the company to
emerge as a strong and viable competitor in the telecommunications industry,' he