XO Restructuring Plan Mostly Approved

XO Communications' creditors and banks appear to have struck a deal that would go into effect on August 26, 2002—but a contingency plan also exists.

by Roy Mark of dc.internet.com [July 24, 2002]

XO Communications, Inc.'s unsecured creditors representing XO's bondholders has agreed with representatives of XO's banks to support both branches of the Reston, Va.-based broadband company's two-pronged plan of reorganization.

As a result, XO is revising the "stand-alone" contingency plan included in its plan of reorganization so that bondholders and other creditors would now expect to recover more of their investment in XO, primarily through their receipt of stock and warrants in the reorganized company.

XO's plan of reorganization includes two alternative restructuring scenarios, the first of which seeks to implement the previously-announced investment agreement with Forstmann Little and Telmex, and the second of which would implement the stand-alone contingency plan, if required.

The company has developed this contingency plan in light of the expressed reluctance of Forstmann Little and Telmex to close the transactions under the investment agreement and the possibility that one or more of the conditions to closing will not be met.

XO expects the stand-alone plan to be available if the company's existing deal with Forstmann, Little and Telmex fails to close as scheduled, although XO has not entered into any written agreements with respect to its contingency plan.

At a July 19 hearing, the U.S. Bankruptcy Court for the Southern District of New York indicated that it would shortly approve XO's disclosure statement, permitting solicitation of its creditors to obtain the approvals needed to implement the restructuring. The solicitation process is expected to begin next week.

At the hearing, the Bankruptcy Court also established Aug. 26 as the date for the hearing at which XO expects to seek confirmation of the Forstmann Little/Telmex plan. XO also confirmed to the court that it would revise the terms of the stand-alone restructuring plan to include increased recoveries for XO bondholders and general unsecured creditors.

XO also announced that it has passed two important milestones in its efforts to satisfy the conditions to the transactions under the Forstmann Little/Telmex investment agreement. First, at the July 19 hearing, the Bankruptcy Court approved the "break-up" fee and expense reimbursement provisions that were a condition to the investors' obligations to proceed.

Second, in order to satisfy an additional condition to the Forstmann Little/Telmex investment concerning litigation, XO has agreed to settle all of the fiduciary duty class action cases pending against it. To avoid any cost to XO, Forstmann Little, or Telmex if the Forstmann/Telmex investment closes, the revised plan provides that XO's banks will fund the settlement in that event.

— End