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The Name is Bond, Broadband ISP TalkTalk Looks to Borrow £300m

Tuesday, January 10th, 2017 (2:02 pm) by Mark Jackson (Score 1,435)
TalkTalk Logo 2017

Communications provider TalkTalk has revealed that it is turning to the bond markets for funding, as well as perhaps suffering an increase in the cost of borrowing, by securing £300 million. This should help them to repay some of their bank lenders (the provider owes around £847m in net debt).

The ISP has had a bit of a rough couple of years, not least due to the cost impact of several cyber-attacks’ and the semi-related customer bleed that has been going on for awhile (example). However the situation has recently been improving, with fewer subscribers leaving and customer complaint levels dropping (here).

But no business can afford to stand still and TalkTalk’s last financial report also revealed that they planned to invest £40m over 3 years to expand their capacity and “drive down our long term backhaul costs by £20m p.a.” (here). The ISP also reported total revenue of £902m for H1 2017 (down from £912m in H1 2016).

According to today’s Telegraph, TalkTalk is due to repay some £50m of debt (short term bank facilities) this year and then £460m in 2019, so the new bond should help towards tackling that problem and at the same time diversify their funding sources; even if it could make future borrowing more expensive. This also marks the first time that the ISP has turned to the bond market for help.

ISPreview.co.uk understands that the bond had been in planning for some time and is a tool that a lot of listed companies use. Indeed TalkTalk is one of the only major players in the UK telco space that does not currently have public bonds in issue and meanwhile the credit markets remain broadly favourable. At our last check (1:52pm) shares in TalkTalk were down about -2% on the day at 169.14p and their next trading update is due soon.

It’s worth pointing out that having a big pile of debt is somewhat par for the course in this market, with BT Group sitting on a colossal pile of £9,573m and Virgin Media having plenty of its own (here). Mind you they both have a huge amount of their own infrastructure.

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29 Responses
  1. Ignition

    Very true that VM and BT have a fair amount of debt. However they also have a lot of assets. Aside from their customer base what assets do TalkTalk have?

    As far as the business in general goes how much more mileage are they planning to squeeze from virtually giving broadband away? The Telegraph story is pretty damning as far as the prospects for the business go.

    • New_Londoner

      It’s never a good sign when a company funds its shareholder dividend through increased debt rather than from profit. The dividend increase may prop up the share price a little in the short term but is just window dressing if not backed by profit.

      If it walks like a (dead) duck, talks like a ….

      Perhaps if the CEO spent time actually running the business rather than lobbying MPs there might still be a future for TalkTalk. Instead it looks increasingly as if it either gets taken over or becomes ever less relevant as its market share shrinks, its competitors continue to out innovate its offerings.

    • Steve Jones

      They have a share of the York FTTP infrastructure plus an awful lot of MSANs sitting in telephone exchanges. No doubt a lot of other comms equipment, IT systems and so on.

    • Ignition

      Total tangible assets, including depreciation, of £302 million as of March 31st 2016. I also see comments suggesting that they are looking at a bond issue as they are in danger of breaching banking covenants.

      These guys really need to get acquired, and from what I have heard have been on the market, albeit in the background, for a while.

    • Steve Jones

      Yup. They’ve been borrowing to finance dividends. It’s a bad sign. Perhaps Vodafone will be hanging in the wings. A cheap way to pick up a lot of customers, although probably not the customer profile they would want.

      I do wonder if their slap-dash approach to security is indicative of their general management approach. It wasn’t that they fell foul of a sophisticated hack. It’s almost on page 1 of a hacker’s handbook, and if they short-cut that, then what else?

    • GNewton

      @Steve Jones: Do you really believe that BT’s long term prospects are so much better than TalkTalk’s? Especially in view of it’s under-investment in enough future-proof technology which could hurt it in the future?

    • AndyH

      @ Gnewton – BT has the largest fibre network in the UK. Not exactly sure how you call that underinvestment…

    • GNewton

      @AndyH: The vast majority of BTs access network is DSL in its various flavours, FTTP is only a small fraction of its network. However, BTs debt burden is huge, so is its pension deficit burden, also it is subject to heavy regulation. How will it manage it debts?

    • TheFacts

      @GN – what’s the availability of FTTP from various suppliers, as in premises passed, in the UK?

    • Ignition

      GNEwton – BT’s debt is not massive relative to the size of the company. They are not overleveraged. The pension deficit is something the company is managing. The debt to capital ratio is not exceptional among peers. The interest payments on the debt, alongside payments towards the pension deficit, are affordable. There are no indications that not spending on FTTP has hurt them. Indeed I was at one time a huge fan of Swisscom over their FTTP deployment, however they themselves rolled back on it in favour of FTTS and G.fast.

      Placing TalkTalk and BT Group in the same risk bracket, or even close to one another, is absurd. One of them makes money, the other loses it and came close to breaching banking covenants in the past year.

    • GNewton

      From what I remember, BTs debts is about 14 Billion Pounds. You are somewhat right because at the moment it has a relatively stable income, as it can still be regarded as a stable utility-style income. But I doubt it will stay like this. Interest rates will rise. New disruptive technologies will come. BT won’t really have competitive products in areas where Virgin has a presence, G.Fast won’t do it. It isn’t investing in rural or small town areas. And Ofcom seems to favour more network-level infrastructure competition.

      History has shown how quickly things can change, remember the early 2000s when it was in severe trouble?

    • AndyH

      As of the end of Q216, BT had short term liabilities of £11bn and long term liabilities of £26bn vs current assets of £8bn and fixed assets of £36bn.

      I’m not sure what “debt” you’re referring to, but BT had a net debt liability of £9.5bn at the end of the 2Q.

      In terms of Openreach (which is presumably what your comments refer to here), you do realise BT has 5 other business divisions which have a collective annual turnover of around £5.4bn vs the £1.2bn that Openreach generates?

      With the gilts coming off their lows (very good for pension schemes), the integration of EE and positive outlooks for broadband/TV customer gains, the outlook is much better for BT. Share price is up 15% in the last month and more analysts have upgraded the stock.

  2. AndyH

    As stated in the prospectus, TT seeks to repay existing RCF (£100MM RCF expires in May 2017).

  3. dave

    Talktalk’s Huawei H633 has been a disaster for me, internet connection dying a lot over the past 3 months and wireless connection dropping even though signal is great. Had to swap mine for a Linksys x6200, my problems have now gone. I’m not surprised that they are bleeding money if they are using junk modem/routers.

    • 125uS

      I’m not sure I see the correlation. if TalkTalk are making £1 or £2 a month profit from their customers, using a router that costs more worsens their financial position surely?

    • Paul

      Maybe just indicative of a lack of care over the business. If they supplied better routers maybe Talktalk customers, like dave, would be more inclined to stay with them when their contracts come up for renewal. However, as we’ve seen with the BT SmartHub, a better router doesn’t necessarily mean a better overall experience.

    • dave

      talktalk have terrible scores for customer satisfaction, their routers are one of those reasons. Many customers will switch to a different isp due to poor reliability.

    • Cunning Stunt

      Loads of ISP’s have lots of complaints about their routers…. BT’s new hub has suffered some serious complaints regarding reliability, this is the same for Virgin Media, Plusnet and even Sky’s router has been complained about for lack of performance.

  4. craski

    I was considering a shift to Talk Talk Business but might hold off to see how it pans out as one way for them to reduce their back-haul costs would be to overload/contend them.

  5. Mike C

    They outsource a company to provide staff in the UK, they’ve for the second time in just 2 years made staff redundant there.

  6. I’ve been with them a little bit with PlusTV and Broadband.

    For someone who wasn’t interested in Sky and got an exceptional tv+broadband offer, I’m quite content, £27/mo on the TalkTalk LLU, caller ID and anonymous reject is free which I’d never seen before. Got Sky 1, 2, Arts, thrown in, movies for free over xmas, and a free movie from TalkTalkTVStore for doing a survey. All works on the free plus tv recorder box too.

    Got a sam knows white box installed and it’s been stable for me since the day I plugged it in. HG633 with about 15-20 devices connected.

    They called once to ask how service was. Called a second time to ask if I wanted to trial some new line settings (fastpath) although it may cause instability. Went ahead and its been fine. Third time to ask if there was anything they could do to encourage me to use the free sim with my package – politely declined and heard no more.

    I wish them well 🙂

  7. If they get tied up with Vodafone, then they will have problems. Try sorting an account problem out if you are unlucky enough to be a Vodafone customer.

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