Fitch Ratings has downgraded the $1 billion senior secured credit facility of XO Communications to C from CC, reflecting an increasing risk of default. On June 17, XO filed for Chapter 11 bankruptcy protection after failing to reach a restructuring agreement with potential investors.
In conjunction with the bankruptcy filing, XO has filed a plan of reorganization that offers two different restructuring scenarios. One scenario would incorporate the plan previously announced by Forstmann Little & Co. and Telefonos de Mexico. The other is a stand-alone plan, which proposes the conversion of $1 billion in loans under the credit facility into common equity and $500 million in pay-in-kind junior secured debt.
Forstmann Little and Telefonos de Mexico had proposed investing $400 million each into the company for an 80% stake. Bondholders rejected that plan, instead favoring Carl Icahn's proposal of investing $550 million for a 55% stake. XO currently is attempting to enforce the Forstmann deal, but Forstmann claims it can legally exit the deal based on a decline in the value of XO. Should the company be unsuccessful in its attempts to enforce the deal, it will be forced to pursue the stand-alone plan, according to Fitch.
* Steel Dynamics ratings have been placed on review for upgrade by Moody's Investors Service, following the company's announcement that it plans to issue up to $175 million in common stock. Proceeds will be used to repay bank debt as well as pre-fund construction and expansion costs at two Indiana mills, thereby further reducing the company's dependence on debt financing. The potential upgrade affects Steel Dynamics' $350 million credit facility, which is rated Ba3 and includes a six-year, $205 million "B" term loan, and $200 million of 9.5% senior unsecured notes, which are rated B2 and come due in 2009.
The equity offering will have a favorable impact on the balance sheet, but Moody's will have to review the interaction of improving but unsettled steel market fundamentals and the ramp-up of the company's Columbia City structural-products mill. Although steel prices have increased sharply this year, this was anticipated in Moody's initial ratings for Steel Dynamics, which were assigned in March.
*Standard & Poor's raised its rating on Applica's $205 million senior secured revolver to BB- from B+. At the same time, S&P affirmed its B+ corporate credit rating for the Miami Lakes, Fla., small appliance manufacturer and marketer. "The upgrade of Applica's bank facility to one notch above the corporate credit rating reflects the value of the company's assets collateralizing the credit facility. Important to the analysis was the assets' potential to retain value over time and in an orderly liquidation under a default scenario," said credit analyst Martin Kounitz.