Thursday, May 15, 2008

XO Hires Bank for what?

XO hired Morgan Stanley in Feb. XO is bleeding money. It is still building out fiber laterals to light customer buildings, but at $10,000 to $50,000 per build (plus equipment), how do you keep that up, especially when:

  1. You have mounting losses
  2. Your debt load is high
  3. Your debt holder doesn't want to re-fi
  4. The market won't let you re-finance
  5. Your stock is OTC at 60 cents
  6. You take a punch in the eye from a Top 25 blogger.

We were discussing this problem at ISPCON. It isn't just an XO issue. Nuvox has some debt issues as well as it sells service so far underwater that I'm amazed it is still in business. (Selling T1's at $400 or less is not a profitable strategy).

In 3Q2007, Nuvox re-financed.

The Loans, as described in NuVox Communications’ original application, would consist of a $180 million senior secured seven-year term loan, a $10 million senior secured six‑year term revolving credit facility, and $70 million of senior second lien secured eight‑year term loans.[source]

It will be interesting to see how CLEC's fair in the next 18 months with the credit crunch, the bad debt, the slowing economy. Customer Retention will be more important that Customer Acquisition.

UPDATE: [XO 1Q08 from The Bear]

Their Core Data and IP revenue is growing at a very respectable pace–30%. However, their overall growth rate is only 3.2% as legacy TD.

"R2 Investments owns a 6.6% equity stake in XO Communications," and according to Zayo's Dan Caruso (and other sources), the minority shareholders at XO are tired of Icahn's preferred status and singular benefit. XO's board did not re-fi their whopping debt that Icahn owns when the market was easy and cheap

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