Carl Icahn is in the market for XO Communications' bank debt and reportedly has been buying up pieces to help protect his bond position in the beleaguered telecom company. Market players said Icahn made a direct appeal to investors in the bank debt, bypassing Wall Street trading desks by sending a letter saying he was looking to buy. The debt has moved up five points since Icahn's letter went out about two weeks ago. Approximately $25 million was believed to have changed hands at as high as 52, although the amount that Icahn bought could not be determined. The debt had been trading in the 46-47 range. Icahn's office declined to provide a copy of the letter sent to investors.
Icahn recently pulled his bid for a 55% stake in the company and a $550 million cash injection after negotiations with bank holders seeking controlling covenants came to a halt. Jenna Deer, a spokeswoman for XO, said that Icahn had withdrawn his bid because of the strict bank covenants but could not confirm that he was accumulating a bank debt position.
Traders noted that Icahn either sees a lot of potential for XO's bank debt or he is just protecting his $750 million bond position in the company. That investment would stand to be hurt by a stand-alone plan, said an analyst who follows the company. "Either way, he must think that by owning some of the bank debt, he can convince enough of the other bank lenders to change their original position and support his restructuring plan without insisting on the onerous covenants," he added. One trader said Icahn has a healthy appetite for the bank paper. "He's willing to pay a higher price for the bank debt than anyone else because he wants to protect his bond investments," he said.