Icahn Gets His Way at XO

Was there ever any doubt?  XO Communications has finally refinanced its debt ^[1], and it did so almost entirely through its majority owner Carl Icahn.  They did so by issuing huge piles of two kinds of preferred stock amounting to $780M.  Of course, they are offering to issue another $39M to the larger minority shareholders, throwing them a bone I guess.

As part of the deal, Carl Icahn now has access to its Net Operating Losses (NOLs) – something it has long been speculated he wanted.  Here is the quote from the PR:

As part of the stock purchase negotiation, XO Holdings, Inc. entered into a new tax allocation agreement with Starfire Holding Corporation, an affiliate of Carl C. Icahn, which replaces an existing agreement. Under the terms of the new arrangement, Starfire will make payments to XO equal to 30% of the income tax savings that Starfire would receive in the event that the Starfire group utilizes XO’s income tax losses, up to an aggregate amount of $900 million in losses. In addition, under certain circumstances the agreement requires Starfire to reimburse or credit XO for income taxes that XO could have saved if Starfire had not utilized certain of XO’s income tax losses in excess of the $900 million limit.

So Carl finally got what he wanted ^[2]. But it is interesting that he will be paying XO some of the proceeds for using the NOLs, I hadn’t anticipated that. Could it be that the not-so-private spat over this refinancing led to this?   And it is not for all XO’s NOLs, only $900M.

The question, which I can’t yet answer, is whether XO can now sell out with Icahn retaining his ability to use these NOLs.  However, the resolution of this telecom soap opera should at least change the game, I’ll bet XO common shares have a wild day.