XO may file for bankruptcy

Competitive carrier XO Communications will file for Chapter 11 bankruptcy before March 15, according to a report on the Web site DotComScoop. The report is based on a leaked XO internal memo.

Bankruptcy rumors have swirled around XO, which has been grappling with a $5.1 billion debt for the past several months.

According to the report, XO will file a prepackaged bankruptcy plan that has been approved by two-thirds of its bondholders. The plan would allow XO to continue operating and emerge from Chanter 11 debt free.

Under the plan, billionaire Ted Forstmann, who already owns 22% of XO, and business partner Telefonos de Mexico, would invest $800 million in XO. Bondholders would get $200 million. In return, Forstmann and Telefonos would each get 39% of the restructured company.

Some bondholders, led by billionaire Carl Icahn, are opposed to the existing XO restructuring plan and are fighting to secure better terms for bondholders.

Speculation surrounding XO comes amid announcement of other CLECs that have filed for bankruptcy over the past year, including McLeodUSA, Winstar and Teligent.