A unique amendment to XO Communications' bank debt agreement has essentially halted the trading of the name in the secondary bank loan market, thereby preventing financier Carl Icahn from buying the bank debt, according to market sources. The company's bank steering committee, which includes TD Securities, Bank of American, Barclays, J.P. Morgan, Deutsche Bank, FleetBoston Financial, and Scotia Capital, passed an amendment that, according to a statement in the company's most recent 8-K filing, requires majority senior lender consent to any transfers of senior secured debt, including both assignments and participation, for up to 90 days. "That would require the approval of the banks for an assignment," said one trader. "That's a little bizarre." Calls to Icahn's office were not returned.
The amount of bank debt that Icahn owns remains unclear. Some market players suggested that Icahn had $250 million of the paper, another said he had a controlling share but gave no amount and still another said that Icahn had no paper at all, asserting that the new amendment was designed to prohibit him from getting the paper. One market player said that amendment was passed to ensure a more orderly bankruptcy, but it also protects the banks' interests.
Credit Suisse First Boston was believed to have traded roughly $50 million of the name last week. According to traders, it ended up in Icahn's hands at the end of the day. The levels at which the paper traded could not be determined, but the last trade was quoted in the 45 1/2 range. CSFB officials declined to comment. Meanwhile, investors who frequently trade the name and others looking to unload the paper are said to be angry with the new amendment.
The company filed for Chapter 11 bankruptcy protection this week and submitted two alternative restructuring plans. One plan calls for the completion of the Forstmann Little & Co. and Telefonos de Mexico agreement, although the two companies have asked XO to terminate the agreement. The second is the company's stand-alone plan and provides for the conversion of the $1 billion in bank debt into common equity and $500 million in pay-in-kind junior secured debt. An XO spokesman said the company is forging ahead with the Forstmann plan, but he had no comment concerning Icahn's participation.