Carl Icahn says that the amendment to XO Communications' bank debt agreement, which has essentially halted the trading of the name, amounts to an ego play on the part of the company's bank steering committee. "They don't want me to buy the bank debt because the steering committee would be out of control of the situation," the renowned financier said of the state of affairs surrounding the restructuring of XO and the lockdown in the secondary loan market.
The steering committee has passed an amendment that requires majority senior lender consent to any transfers of senior secured debt, including 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."
Forget bizarre. Investors are using other words to describe it. Market players who frequently trade the name and others looking to unload the paper are angry with the new amendment because it significantly dries up liquidity. Icahn told LMW Friday that some banks are miffed as well. "A lot of the bank members, especially the ones who have sold to us, are up in arms." Icahn has been moving on the bank debt to gain leverage in XO's restructuring (LMW, 6/10). He said that his firm has done about $170 million in XO trades, but he declined to specify his net position. "Other banks have offered to sell. But we are currently determining what to do with those offers."
Allison Taylor, chairwoman of the Loan Syndication and Trading Association (LSTA), said other investors are also offering an earful on the move. "How dare these banks tell me that I don't have the right to manage my own portfolio," she said, summing up the cries from the buyside. While the imposition of the amendment comes down to a case of contractual law, Taylor said the LSTA can try to set guidelines to prevent a situation such as this. "One of the things proposed by the market is that any amendment would require 100% agreement," she noted.
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.
The company filed for Chapter 11 bankruptcy protection last 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.
The company's bank steering committee includes TD Securities, Bank of America, Barclays, J.P. Morgan, Deutsche Bank, FleetBoston Financial, Scotia Capital and CSFB. Officials at TD, B of A, J.P. Morgan, Scotia and Barclays declined to comment. Officials at the other banks could not be reached.