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To: Softechie who wrote (1570)	8/2/2001 11:43:04 AM
From: Softechie	Read Replies (1) \| Respond to of 2155

XO COMMUNICATIONS (XOXO: $1.34) 8/2/01 XO Communications confirms market speculation regarding repurchase of outstanding debt. Step #1 of balance sheet restructuring effort underway Annual EPS Prev. EPS 12/02E 12/01E -5.31 12/00A -3.83 Rating: STRONG BUY Change: 12-Mo. Target: $11 As we wrote last week in our 2Q01 XO earnings review, we have been expecting a debt repurchase transaction for several months. Although XO management confirmed that repurchase activity was indeed underway, we were unable to confirm: 1) the targeted size of the transaction; nor, 2) the instrument(s) involved (i.e., high yield debt and/or preferred stock). However, we believe the ultimate size of the repurchase could reach $1B in principal value of both Preferred and High Yield instruments. We view this development as a good first step towards balance sheet restructuring as it could help to moderate the severe level of investor concern regarding XO's leverage position. However, more work still needs to be done to close the $1.1B funding gap before those investor concerns can be fully put to rest. Impact on the balance sheet? Given that XO debt is currently trading in the high 30s, we therefore estimate a repurchase of $1B (face value) would utilize less than $400M of cash out of a total available liquidity of $1.8B at mid-year. Using this approximation and an average 11% cash interest rate on XO's debt instruments, we note that XO would recover around 55% of the cash outlay over the next two years via reduced cash interest payments. But wait, there could be more to come... In addition, we suspect that there may be more parts to this transaction that could be announced over the coming months. Specifically, we would look for the raising of additional funds -- via either another round of private equity and/or assets sales -- that could further help to fund the balance of this debt repurchase program.