DJ XO Commun Up -2: Co Considers Cap Spending Cuts -Report
18 Apr 13:27
By Riva Richmond
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--XO Communications Inc. (XOXO) stock rose 32% Wednesday
on news that Forstmann Little & Co., a private equity firm and XO investor, may
invest an additional several hundred million dollars in the cash-strapped
telecommunications company.
The New York Times reported that Forstmann Little, which has already invested
$1.2 billion in XO, may provide a cash infusion. The article cited an executive
close to the discussions. The newspaper said that last week, Theodore
Forstmann, senior founding partner of Forstmann Little, bought 200,000 shares
of XO stock at $8.85 each, a significant premium, or a total of $1.77 million.
The New York Times also reported that XO is considering cutting capital
spending by as much as $500 million.
Todd Wolfenbarger, a spokesman for XO, declined to comment on any talks with
Forstmann Little. He said the company is looking at ways to either lengthen the
amount of time XO needs before it is forced to return to the capital markets
for new funds or decrease the amount of money it needs to raise to get to
break-even.
XO currently has about $3 billion in cash, short-term investments and bank
facilities, enough to last through the middle of next year, said Moody's
Investors Service analyst John Page.
Moody's Wednesday confirmed its ratings on XO's debt, but changed its outlook
to negative from stable. "Given the gap that they are facing next year, we felt
that a stable outlook was no longer appropriate," said Page. The gap refers to
the amount of money XO needs to be free cash-flow positive under its current
business plan, which analysts estimate to be in the $2.5 billion range.
A Forstmann Little spokeswoman could not be immediately reached for comment.
XO's stock recently traded up 95 cents, or 32.5%, to $3.81, on volume of 19.5
million, compared to an average daily volume of 9 million. The shares hit a
52-week low of $2.40 Tuesday, as investors sold the stock on fears that XO
would not be able to raise needed capital.
Many highly leveraged startup telecommunications companies are facing a cash
crunch now that investors have soured on the industry. Sentiment continues to
deteriorate as the most vulnerable firms begin to file for bankruptcy.
Tuesday's selloff in XO stock was likely sparked by news late Monday that
Winstar Communications Inc. (WCII) might file for Chapter 11 bankruptcy
protection. On Wednesday, Winstar indeed filed for bankruptcy and summarily
filed suit against Lucent Technologies Inc. (LU), alleging breach of
partnership agreement obligations. Lucent declared Winstar to be in default on
interest payments of about $75 million on senior debt securities.
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