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UPDATE 1-Telmex, Forstmann Little to invest in XO Comms
November 29, 2001 09:02:00 AM ET
(Adds details throughout)
RESTON, Va., Nov 29 (Reuters) - Broadband communications service provider XO Communications Inc. (XOXO) said on Thursday Mexican telecommunications firm Telefonos de Mexico S.A. de C.V. and investment firm Forstmann Little agreed to invest $400 million each in XO in exchange for new equity in the company.
XO said current holders of the company's equity securities are expected to lose substantially all of the value of their investment as a result.
XO said its board approved a preliminary agreement with Forstmann Little and Telmex (TMX) <TELMEXL.MX>, the No. 1 provider of local, long-distance and Internet services in Mexico and one of the top telecommunications firms in Latin America.
As part of the agreement, XO said it will not make scheduled interest and dividend payments on its unsecured notes or preferred equity securities after Nov. 30.
Once the transaction is closed, Forstmann Little and Telmex will each own 39 percent of the company's outstanding equity. The remaining equity, other than that allocated to company employees, is expected to be held primarily by holders of the company's senior notes.
"We believe this equity infusion will secure the company's future," Dan Akerson, chairman and chief executive of XO, said in a statement.
"The investment will allow us to build upon our solid foundation with a strengthened balanced sheet, significantly reduced debt and a fully funded business plan. It also means that our customers will not experience any changes in the way that we continue to deliver service to them, except for the better," he said.
XO and other emerging telecommunications companies have faced a cash crunch as demand slowed and capital markets became averse to funding money-losing upstarts.
XO had said earlier this month that it hired investment banker Houlihan Lokey Howard & Zukin to help evaluate its options, including attracting potential investors or additional funding to restructure its balance sheet.
XO said the proceeds of the investment by Forstmann Little and Telmex will be used to fund the continued development of XO's broadband telecommunications networks and ongoing business operations as well as to complete the restructuring of its balance sheet.
XO said the preliminary agreement calls for the execution of a definitive agreement on or before Dec. 14.
The investment is contingent on regulatory approvals and XO's successful completion of a restructuring of its existing balance sheet. The restructuring is expected to require the completion of transactions with holders of XO senior notes and lending institutions under XO's secured credit facility.
When the restructuring is completed, XO should have total debt outstanding of no more than $1 billion of senior secured debt in addition to its existing capital lease obligations, XO said.
Shares of XO closed at $1.03 on Nasdaq on Wednesday. REUTERS
© 2001 Reuters
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