TalkTalk has been scrambling in order to secure a £200m loan from Sir Charles Dunstone, as it tries to avoid collapse.
Directors of TalkTalk warned in its latest annual report that there was a danger the company could collapse “in August 2020 or earlier”.
The company added that “these risks represent a significant uncertainty which may cast doubt on the group’s continued ability to operate as a going concern, such that the group may not be able to realise its assets or discharge its liabilities during the normal course business.”, the troubled telecoms company , is currently in talks with lenders about refinancing more than £1bn of outstanding debt. The firm’s future is at risk due to looming deadlines for repayment.
TalkTalk, with 3.6m broadband subscribers in the UK, warned that it has not yet secured sufficient new funding, or extended the deadlines for its existing debt facility.
The company will therefore be expected to break its debt covenants by August, a move which would result in an “imminent lack of liquidity” that could push the business to insolvency.
Sir Charles and TalkTalk’s other major shareholders, led By private equity firm Toscafund have stated that they are willing inject an additional £200m in the company. This would allow it to continue operating for the short-term if confirmed.
Discussions are ongoing, but it’s believed that shareholders will ask lenders to reduce their debt in exchange for funding. TalkTalk has a grace-period until 30 October to negotiate new terms if a breach occurs next month.
TalkTalk also faces uncertainty regarding debts of more than £1bn that are due to be repaid in the next few months.
Refinancing of a £330m revolving loan facility is due in November. The Telegraph reported in May that banks backing the loan were looking to reduce exposure to just £150m. TalkTalk has also £685m of bonds that are due to be repaid in February 2025.
The debt crisis is escalating as TalkTalk’s broadband business suffers from tough competition and rising inflation.
The inflation-driven increase in operating costs pushed TalkTalk’s loss before tax from £70m up to £127m for the year ending March. Finance costs increased from £106m up to £134m, as interest rates reached their highest level for 16 years. Interest on loans went from £44m up to £74m.
TalkTalk’s client base decreased by 334,000 in the past year, as it cut sales and marketing expenses. The company also said that it had refocused on its customer strategy “value over quantity”.
Sir Charles and Toscafund led by Martin “the Rottweiler” Hughes took TalkTalk private after racking up huge debts. The company’s finances have been stretched to the breaking point by rising interest rates, which has forced bosses into a radical restructuring plan.
TalkTalk’s business division was sold to existing shareholders last year for £95m. It is expected that its consumer arm will also be up for sale.
Since the beginning of this year, the company has been in discussions to sell a significant stake in its wholesale business to Macquarie in order to pay down some debt. However, a deal has not yet materialised.
The Australian investment bank is believed to have recently increased its bid for a bigger stake from £500m to £500m.
Lenders could take control of TalkTalk if it fails to refinance debts. Ares Management, a private credit fund that is a major shareholder of TalkTalk, has asked restructuring experts to give advice on the company’s options.
James Smith, TalkTalk’s Chief Financial Officer, stated: “We expect agreement on new capital investments into the business to be reached in the near future and are currently having discussions about this.” The engagement with a new investor and potential lenders continues.
“At the time, existing shareholders of the group have confirmed their intention to provide new funding in the amount of more than £200m to the group for working capital and operating costs.
The company and its shareholders are currently in discussion with group lenders or their advisors about the best way to invest that funding.
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