XO Debt Restructuring Pits Icahn, Forstmann

XO Communications Inc., a local phone company that has seen its value decline to $40 million from $20 billion, is the object of a tussle between investors Carl C. Icahn and Theodore J. Forstmann.

Icahn said he and two other investors, whom he declined to identify, owned more than one-quarter of XO debt and were opposed to a plan put forward by Forstmann to replace those bonds with stock and cash. XO said in November that Forstmann’s buyout firm and Telefonos de Mexico would invest $800million to eliminate $4billion of bonds and wipe out equity, to avoid an involuntary bankruptcy.

Shares of Reston, Va.-based XO rose 3 cents to 9.5 cents in over-the-counter trading.