The founder of TalkTalk, Sir Charles Dunstone, and fellow shareholders are reportedly preparing to inject around £180m of new equity into the financially troubled UK internet provider. The move would help to tackle the threat of two large debt repayments, which are due over the coming months and said to total up to over £1bn.
The provider has already spent much of the past year or two wrestling with the pressure from its existing c.£1bn debt pile, which in 2023 culminated in a plan to demerge the group into three separate businesses (TalkTalk Consumer, TalkTalk Business Direct and the wholesale centric PlatformX Communications – here), while also cutting costs (e.g. marketing) and monetising some assets (e.g. selling IP addresses).
The demerger could also, in theory, make it easier to sell off individual parts of the business (selling the entire group proved tricky) and indeed Virgin Media (VMO2) has recently been linked with a possible acquisition of TalkTalk’s Consumer broadband business (here). But the first piece to go was technically TT Business Direct, which ended up being sold to the company’s own shareholders for £95m after struggling to attract other fish (here).
The company is also attempting to raise £450m from the possible sale of a large stake in PlatformX Communications (wholesale division) to Australian investment giant Macquarie which, if successful, would help to pay off some of the debt and avoid a default. Suffice to say that TalkTalk are still very much in the midst of trying to resolve their now legendary debt problems, with pressure from several looming repayment deadlines (totally over £1bn) – due over the coming months – helping to concentrate minds.
The Telegraph (paywall) now claims that the banks behind the provider’s £330m Revolving Credit Facility (RCF), which is due for refinancing in November 2024 and is a primary source of liquidity, are seeking to reduce their exposure down to £150m. In order to stave off a debt crisis, the banks are reportedly pressing Sir Charles and fellow shareholders (e.g. Toscafund) to inject the remaining c.£180m as part of a rescue deal.
The negotiations over this are said to be ongoing, although it’s worth noting that, even if a deal can be reached, there is still £685m worth of bonds that fall due in February 2025 and issues with some loans. The alternative approach to the aforementioned rescue deal could be a debt-for-equity swap, which would see TalkTalk’s lenders take control. TalkTalk declined to comments on this.
According to credit ratings agency Fitch, a default is still considered “a real possibility” for TalkTalk under its downgraded CCC rating (here). “Fitch believes TTG’s corrective action plan, which includes restructuring the business model and raising equity investment, could enable a refinancing and recover operating performance. However, this is subject to execution risks. Failure to execute it successfully in a timely manner will materially increase the prospects of a near-term debt restructuring event and likely drive further negative rating action,” said Fitch in January 2024.