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Technology Stocks : XO Communications (XOXO)
XOXO 34.990.0%Dec 21 4:00 PM EST
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To: rrufff who wrote (651)10/30/2001 3:03:44 PM
From: howp  Read Replies (2) of 1018
 
Agreed. Few comments.

COVD is a slightly different case in that their business case was "broken". No way to generate the revenues forecasted in the original B-Plan. Low value in the assets precipitated cramming the debt. XO's plan is still viable and always had massive debt/losses and frequent stops to the capital markets built in. A short's dream. Capital markets closed, high share price, and a funding gap.

I fully agree with your comments about McCaw vis-a-vis non shareholder managers. His stature enabled them to assemble the assets. He will most likely get a big chunk of the coming equity deal.

In XO's case, the bondholders have a valuable asset that could be easily auctioned for $5B. This implies the bondholders get out at par and the stock is worthless. Why negotiate lower rates, especially individual bondholders?

I am not sure why XO would continue to buy back debt, when their #1 priority is the funding gap. Theoretically, they could buy back all their debt, then go out of business because they have no cash to fund their operations.

What will happen is a massively dilutive equity deal. Shorts covered after the bombing to $1.89 and have probably placed more bets in the last few days. I imagine the equity deal is being discussed as I write and the specifics uncertain. The stock and bond prices are hedged for both a BK filing (very unlikely) and a massively dilutive equity deal. Once the deal is announced, I imagine the stock slides sideways and the bonds firm. Long term, bridging the funding gap indicates survival and outweighs the dilution. Stock goes up.
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