Not that it should come as a big surprise, but XO Communications Inc. has filed for bankruptcy under the protective blanket of Chapter 11. Along with the filing, the broadband service provider has submitted a two-pronged reorganization plan.
The bankruptcy filing, submitted in the U.S. Bankruptcy Court for the Southern District of New York, is limited to parent company XO Communications, and will not affect XO's operating subsidiaries, the company said in a statement. The company does not expect to reduce its workforce or interrupt operations.
The proceedings will enable XO to hunker down and concentrate on its reorganization plans. The company is offering two possible scenarios to complete its restructuring. The first surrounds a previously announced deal with investors Fortsmann Little & Co. and TelMex, which would give each company would invest $400 million in XO in exchange for a combined stake of nearly 80 percent in XO's outstanding equity. Last week, however, Fortsmann Little and TelMex asked XO to agree to terminate the stock purchase agreement to "clarify for all of the company's stakeholders the restructuring options available to the company." XO rejected the request and said, "We do not believe that the investors have any right to terminate their obligations unilaterally, and see no reason to believe that the closing conditions cannot be satisfied. We flatly reject the investors' notion that it is 'virtually impossible' for conditions to the investors' obligations to be fulfilled."
Although XO does not believe the investors have the right to get out of the deal, it is offering an alternative, stand-alone plan, which calls for the conversion of the $1 billion in loans under the secured credit facility into common equity and $500 million of pay-in-kind junior secured debt. The informal steering committee of lenders under the secured credit facility has indicated that it is prepared to support the stand-alone restructuring plan, XO said.
The SEC also added XO to its growing list of telecom companies it is investigating last week. The "informal" probe surrounds some of XO's sales practices.