Copyright 2002 The Deal L.L.C.
The Daily Deal…04/16/2002
LONDON - Talks between stricken cable operator NTL Inc. and bondholders about a debt-for-equity swap have made rapid progress in recent days, and an agreement could be unveiled this week if creditor banks agree to the terms, sources said April 15.
New York-based NTL and a committee representing a majority of bondholders are discussing an agreement under which $ 11.5 billion of bonds would be forgiven in exchange for about 95% of the company's equity. Also under discussion is a further cash injection of about $ 500 million from the bondholders to ensure the company has sufficient funds to maintain operations after the restructuring. The cash call will likely take the form of a rights issue, further increasing bondholders' stake in the company.
NTL's creditor banks, which are owed about $ 6 billion, must also approve the debt-for-equity swap.
NTL and bondholders are "broadly in agreement" on the plan, a well-placed source said but added, "It's not complete until the banks are on board."
The plan on the table does not call for the banks to forsake any of the money they are owed and would push them to the front of the queue of NTL's creditors after the restructuring.
"There are a lot of parties involved, and hammering out the details of this is a very complex business," the source said, adding that reaching a definitive agreement is particularly hard because no party wants to sign up until others have committed themselves to the deal.
Sources declined to discuss what agreement, if any, had been reached on the future management of NTL. Bondholders have reportedly been pushing to see the heads of at least some senior management roll, including chief executive Barclay Knapp and chairman George Blumenthal.
Once an agreement is reached, NTL is expected to seek Chapter 11 protection from bondholders that have not agreed to the deal and could seek to push it into liquidation.
Current NTL shareholders, meanwhile, including France Telecom SA and U.K. telecom provider Cable & Wireless plc, could end up with little more than 1% of the company after the debt-for-equity swap and capital increase are completed, industry observers have predicted.
"Those shareholders are basically going to be diluted out of existence," said Alex DeGroote, media analyst at Credit Agricole Indosuez in London.
UBS Warburg is advising the bondholders' committee, which includes financial institutions such as Angelo, Gordon & Co.; Franklin Resources Inc.; Huff & Co.; and Appaloosa Investment Ltd.
In January, NTL appointed Credit Suisse First Boston, J.P. Morgan Chase & Co. and Morgan Stanley to open talks with bondholders and banks. CSFB has been leading the current debt-for-equity negotiations.
In addition to the talks with bondholders, NTL, which has been crippled by its mammoth debts, has also held discussions with potential strategic investors in the company.
These have included John Malone's Englewood, Colo.-based cable holding company Liberty Media Corp. Talks between NTL and Liberty, however, broke down this month with Malone reportedly seeking Knapp's ouster.
Despite the collapse of the talks, Liberty has been reported as saying it may look again at buying a stake in NTL after the restructuring process is completed.
Liberty already owns a minority stake in Britain's No. 2 cable operator, Telewest Communications plc. Built on the back of a debt-fueled deal spree, NTL, the U.K.'s largest cable operator, has failed to generate enough revenue to service its debts.
The cable operator, which offers television, telephony and high-speed Internet services, is widely believed to have struggled because of Britain's fragmented cable industry and the strength of rival British Sky Broadcasting plc.