Dark Clouds over XO?

Looks like the distressing telecom business reality is catching up with XO Communications. I was reading through their SEC filings and came across something interesting. Essentially what it said was that unless XO meets some minimum EBITDA requirements, it could not comply with a financial convenant related to its debt. It blew it in 2004, and now the company has said it would not be able to meet those in 2005. In other words, 2005 is a year of jaundiced financial performance.

We have obtained a waiver through December 31, 2005. If we are not able to (i) amend this Credit Facility covenant to either remove the minimum EBITDA requirements or to decrease the requirement to a level we believe we can achieve, (ii) obtain an extension on the waiver to at least March 31, 2006, or (iii) repay the Credit Facility with a new debt or equity offering, under the current accounting guidelines we will be required to reclassify the $366.2 million amount outstanding from long term to short term as of March 31, 2005.

If it is not able to do this, well lights out baby! Given what is going on in the whole CLEC space, there is little hope for XO, or infact anyone else who went into bankruptcy and came out with pretty much the same model. McLeodUSA is already swirling down the toilet again!

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