The banks holding XO Communications' bank debt are not yet ready to take up Carl Icahn on his offer to buy $331 million of the senior secured paper at 40, as lenders hold out hope that they can continue to fend him off and realize a better recovery with their own plan. "People think the company has a higher value," said one dealer, noting that selling to Icahn caps out the recovery value at 40. But not everyone is so sure, and there was some speculation that, if one bank cracks, there would be a rush to unload rather than be left holding the paper.
Icahn's tender offer, announced last week, is a play to get around the June 11 amendment that requires the majority lenders to consent to any transfers of senior secured debt, including assignments and participation, for up to 90 days. In conjunction with the offer, the tender calls for the senior secured lenders to revoke the amendment. The offer will be executed on a first come, first served basis. Icahn did not return calls seeking comment. An XO spokeswoman declined to comment on Icahn's tender.
More than 51% of the bank debt holders must be in consent to break the amendment, which was signed by holders of 50.8% of the paper, indicating that Icahn has to have an original holder of the amendment break the amendment. Icahn needs more than one-third to block any attempts for the banks to impose their standalone plan on the other creditors. One nonbank owner of the paper blasted the banks for their circle-the-wagons mentality. "The banks have acted so irresponsibly and dragged the management around to block an economic actor from making an economic play," the investor said.
And there are dealers that agree. One questioned the ability of such an amendment to hold. "If it does, it would be catastrophic to the loan market," he said, noting how the amendment kills market liquidity. But liquidity may find its way. Some players said they think Icahn's offer is the best the banks will get. "I think people are going to take him up on it...because what's plan B?" one trader, who is not in the paper.