The creditor bloodbath in UK telecoms
BT struck a deal to buy TalkTalk but the majority of the struggling broadband provider’s creditors are likely to be left with nothing
A wipeout in UK telecoms
BT’s eleventh-hour acquisition of UK broadband provider TalkTalk may have given a lifeline to 1.5mn broadband customers. But the company’s owners and creditors owed almost £1.5bn have been afforded no such reprieve.
BT’s move to acquire the heavily indebted company out of administration is set to leave the majority of those lenders with nothing, said two people familiar with the matter.
After years of pouring hundreds of millions of dollars into the broadband group, in the form of equity and debt at multiple parts of the capital structure, US private capital group Ares Management is set to receive a payout of more than £100mn.
Yet those creditors lower down the capital stack will not be so lucky, with BT’s offer likely failing to cover those in the most secure of TalkTalk’s bonds.
Ouch.
BT’s move will lead to it taking control of the business, shorn of its debts, as part of pre-pack administration, which will grant it a further 1.5mn UK broadband customers. BT said it anticipated the deal would result in a £400mn hit to its cash position in its current financial year.
The agreement came after the FT reported that BT chief executive Allison Kirkby had met government officials last week to discuss how to address competition concerns that could arise from combining two large broadband providers.
A deal between the companies would ordinarily trigger a competition review as Openreach, the broadband network owned by BT, is TalkTalk’s largest supplier.
But UK culture secretary Lisa Nandy on Monday said she had invoked a public interest intervention notice for the deal “to ensure that impacts on public health, critical national infrastructure and supply to vulnerable customers are fully considered as part of this process”.
Creditors are not the only unhappy party.
BT’s rival Virgin Media O2 said the deal had “all the characteristics of a stitch-up masked as a rescue deal in the public interest”.
The comments came days after the Competition and Markets Authority indicated it might block a £2bn deal by Nexfibre, a broadband provider part-owned by the company’s shareholders, to acquire its rival Netomnia, citing competition concerns.
It’s fair to say that TalkTalk has not been a good investment. BT will be hoping to change that.