Debt-laden UK Broadband ISP TalkTalk Looks to Bailout by Founder
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).
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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.
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Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on X (Twitter), Mastodon, Facebook and Linkedin.
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Read the room
Wrap it up, it’s been a good ride but let it go.
Staggering when you consider that TalkTalk is a large retail, business and wholesale provider, and yet somehow haven’t managed to make this profitable or at least ‘less lossy’ yet.
They’re quite important to the overall landscape really given how many smaller providers use them wholesale.
I don’t understand how they’ve got in this position. Bad management? High dividends?
Some of it relates to the financial complexity of past takeovers and linked debts, while others could perhaps be linked back to expensive (risky) bets on premium Pay TV services and mobile products – none of which worked out as well as hoped. There are a lot of developments that have happened with TalkTalk, over the years, which could be said to have contributed.
When TalkTalk was doing well it prioritised paying out dividends over paying off is debts. As such the big pile of debt has caught up to them.
Mark is right that pay tv hasn’t really worked out.
I think I see an obvious few problems, a large part of their customer base are budget customers who are low revenue, another issue is they went all in on the land line services for voice which are almost obsolete, they are no longer tied to mobile phones in any way.
Free echo dot seems such a strange way to attract customers.
Debt indicates a over aggressive model for growth, seemingly a too large emphasis on acquisitions.
Reputation is poor as well, no one associates talk talk with quality, they still have the security issues lingering over them and they offer nothing that is a wow effect that brings people to the brand, too many other players involved in that now.
If I was placed in charge of the group the obvious play would be a merger with three, gives them a mobile customer base, gives three a fixed line base, talktalk wholesale network could be utilised for three, talktalk I assume would be the junior partner given its poor performance but it would offer light at the end of the tunnel. Would also partner with netomnia (assuming cityfibre arent preventing that), and then would be the only big name isp to offer 8000/8000 adding magic to the brand.
High bonuses for management and also killing off their UK customer service will have alienated many. Then there’s the data breaches, not just their website but their Qube engineer booking portal which was more of an own goal than a “hack”. The password was Preston1! For everyone based in the Preston office for example.
I was put on their “cyber attack” line and had to deal with unhappy customers by offering them free FTTC for a year or £100 credit.
When I worked there in 2017, they were paying dividends out at about 7% that were not covered by cash flow. Dunstone owned circa 30% of the business so was taking millions out of the business through dividends funded out of debt.
So now he’s having to put that money back in to stop the business collapsing under the weight of his own strategy.
I’d love to see an in-depth piece on here about what happens when a UK ISP goes bust. There’s a lot of out of date info out there but very little I can easily find about what Ofcom could or would do if a buyer wasn’t forthcoming.
Ofcom passed this to the OTA to define the process and it is detailed here – https://www.offta.org.uk/__data/assets/pdf_file/0024/145680/SOLR-Industry-Process.pdf
Maybe part of their problem is around using three different suppliers to get the connection to their customers and then not being sure who is actually supplying it and then paying 2 suppliers for a single connection….
Seems wildly unlikely.
@125us
Sadly its not.
Have been to jobs for talk talk where Openreach is installed, even utilised the patch and ECB of the other provider but I am attending on behalf of the other provider.
Installed for them then Openreach turn up at some other point and install theirs over the other one and both suppliers are billing TalkTalk for services….