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Bankruptcy Judge OKs XO Restructure

August 26, 2002

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A federal bankruptcy judge approved a restructuring plan for XO Communications Monday that requires an $800 million investment from two firms that had been trying to back out of the deal.

Investment firm Forstmann Little and the Mexican telephone company Telmex had agreed last year to provide $400 million each to XO in a bankruptcy reorganization in return for an 80 percent stake in the reorganized company.

But Forstmann and Telmex later said they wanted out of the deal, believing that XO could not live up to its obligations. XO refused to release them from the deal.

At Monday’s hearing in New York, U.S. Bankruptcy Judge Arthur Gonzalez ordered the Forstmann deal to go forward, said XO’s lawyer, Tonny Ho.

``That’s exactly what we wanted,″ Ho said.

Forstmann Little, which had already invested $1.5 billion in XO, controlled 34 percent of XO when the company filed for bankruptcy in June, according to court records.

George South, the lawyer representing Forstmann Little and Telmex, declined comment Monday evening.

At one point, Forstmann had been in a bidding war with financier Carl Icahn to gain control of the telecommunications company.

If the Forstmann deal falls through, XO’s backup plan calls for restructuring $1 billion in loans and converting some of that debt into equity.

XO, founded by telecommunications entrepreneur Craig McCaw in 1994, employs about 6,300 people. It provides business customers with a variety of telecommunications services in 63 U.S. markets.

XO lost $2.1 billion in 2001 and listed debts of more than $5 billion when it filed for bankruptcy.

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