Virgin Media reschedules debt
October 15, 2008
Virgin Media shares rose by a quarter after the group said it had persuaded its 10 biggest creditors to support moves to rearrange its debt of more than £4bn (E5bn). Worried by the banking liquidity crisis Virgin brought forward the negotiations as it sought to roll back its major repayments by two years.
Virgin Media said that it had the "unanimous support" of its 10 biggest bank lenders. They represent between 45 and 50 per cent of the £4.3bn in loans that the cable group has outstanding. Its shares on Nasdaq rose 23 per cent, they had fallen by 74 per cent in the past year.
In a statement, the company said it was seeking the necessary consent of two-thirds of its lenders to changes in the main agreement. In effect, all major repayments would be postponed to June 2012. Under the current arrangement, Virgin Media has to begin repaying the debt in early 2010, and analysts have said that its ability to service more than the early stages of that schedule was open to doubt. If they consent to the new arrangements, the banks will receive fees totaling up to £70m and a further £50m a year in increased margins.
Neil Berkett, chief executive of Virgin Media said the new arrangements were in the best interests of the company, its shareholders and the banks.
The problem for Virgin will be if ARPU declines in a recession; it won't be able to sustain capex and meet debt commitments but cutting capex could leave it vulnerable to competition from BT and others.