Broadband ISP TalkTalk UK Confirms £400m Deal with Lenders UPDATE

Debt ridden UK broadband ISP TalkTalk have this morning confirmed that they’ve finally reached a £400 million deal with their lenders. The deal will buy the internet and network provider time to resolve their underlying financial woes by extending the group’s debt maturities to 2027 – avoiding an ugly default.

The deal will see TalkTalk’s shareholders (led by founder Sir Charles Dunstone, as well as Toscafund and Ares Management) agreeing to immediately inject £65m into the company, with a further £170m to follow. Some leadership changes would also occur, with CEO Dame Tristia Harrison becoming a Non-Executive Director in September 2024 and being replaced by James Smith (current Group CFO), while Dunstone will remain Group Chairman.

The £235m capital injection would then be complemented by an asset package (i.e. parts of the company normally held separately) worth roughly the same value (i.e. capital and asses worth a total of c.£400m) to entice lenders, which is expected to bundle-in wholesaler Virtual1 and the customer bases acquired from SSE Broadband (Ovo) and Shell Energy (here).

We will update again once the official announcement drops into our inbox.

UPDATE 9:13am

As expected, TalkTalk has just confirmed details of the agreement.

TalkTalk’s Statement in Full

As detailed in the Company’s Annual Report and Annual Results Presentation published on 18th July, the Company is in discussions with its financial stakeholders regarding the terms of a potential extension of the maturities of the Company’s secured debt, being Revolving Credit Facilities (“RCF”) maturing November 2024 and Senior Secured Notes (“SSN”) maturing February 2025.

The Company is pleased to announce that the key terms of a refinancing transaction have been agreed between a group of SSN holders, a group of RCF banks (the SSN group and RCF group together represent approximately 60% of the Company’s secured debt), Ares Management Funds and the Company’s major shareholders.

The proposed transaction will leave the Company well-funded to deliver the respective strategic plans of PlatformX Communications (PXC) and TalkTalk, continuing to capitalise on their strong positions in the market.

In conjunction with this agreement in principle, the Company’s shareholders have today provided £65m of interim funding to the Group.

This agreement in principle includes:

• Provision of £170m of funding, in addition to the initial £65m, upon execution of binding lock-up arrangements between the parties,
• The contribution of other assets into the Group by its major shareholders and Ares Management Funds, including the Virtual1 business, and the Ovo and Shell branded customer bases, and
• The extension of the first RCF [Revoling Credit Facility] and SSN maturities to September 2027.

The terms of the agreement in principle are non-binding and remain subject to documentation, requisite internal approvals and implementation. The Company expects to make further announcements, including more detailed terms, in the coming weeks.

The Company today also confirms a series of leadership changes, with effect from 1st September 2024. As previously announced, Dame Tristia Harrison will become a non-executive director of the Group. James Smith, current Group CFO, will become Group CEO and will also become CEO of PXC, with Tom O’Hagan stepping up to a new role of executive chairman of PXC to focus on strategy and clients. Susie Buckridge remains CEO of TalkTalk, the Group’s consumer business. Sir Charles Dunstone will continue in his role as Group Chairman.

Just to recap. The TalkTalk Group has already spent much of the past few years wrestling with 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 has proven tricky) and 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 much interest (here). But so far there have been no further deals and key repayment debt deadlines were fast approaching.

The new deal today will buy the group time, although it’s worth noting that a potential sale of a big stake in TalkTalk’s wholesale business – PlatformX (potentially worth around £400m to £500m), which formed part of separate discussions with Australian banking giant Macquarie, were recently reported to have fallen through. Suffice to say that there’s still a struggle ahead, although the risk of a collapse has been avoided.