TalkTalk is meeting investors this week with a session organised by British bank Barclays tomorrow (18 October) and a fireside chat hosted by New Street Research, a TMT-focused independent research boutique, on Thursday, according to three sources familiar with the matter.
The UK telecoms provider’s Chief Financial Officer James Smith is scheduled to attend the fireside chat on Thursday to update investors on current plans and take questions from them, two of them added.
The series of meetings come after bondholders organised and heard pitches from financial and legal advisors last week, as reported.
The B-/B- rated GBP 685m 3.875% senior secured 2025s are indicated at 71-mid today (17 October) with a 32.2% yield-to-worst on Markit.
“(The company) doesn’t talk to investors one-on-one and it is hard to get management to speak. Their preferred way of communicating seems to be through fireside chats,” one of the sources said. “They need to speak with investors and the bonds are in the 70s – it is time for a different approach.”
TalkTalk previously held investor meetings through Citi on 18 July, during which it elaborated on its expected operational recovery and refinancing strategy. But some investors were apprehensive about the refinancing plan given its increasing HoldCo PIK size, downward pre-IFRS 16 earnings trajectory and uncertainty on realising any speculated sale value on its B2B Direct business, as reported.
TalkTalk announced on 29 September that it had sold its B2B arm, TalkTalk Business Direct, to TFP Telecoms Limited (TFP), a special purpose vehicle controlled by the main shareholders of TalkTalk Telecom Group Limited (TTG), for GBP 95m. As part of the sale, the B2B business had also signed an exclusive long-term wholesale services agreement with TalkTalk worth approximately GBP 25m over the next three years.
The company is expected to have higher year-on-year EBITDA in FY23/24 on both a pre-IFRS 16 and post-IFRS 16 basis, while its average revenue per user in 1Q23/24 on its Wholesale platform grew around 14%-15%. The Wholesale platform (75% of remaining group EBITDA after the B2B Direct business sale) is infrastructure-like. High yield debt on this business is expected to be smaller than it is today, while the company considers direct lending as one of its options, as reported.
The outstanding amount on the HoldCo PIK had risen to around GBP 380m after an around GBP 90m debt increase via fund Ares, which lent the amount to the HoldCo via a Virtual1 asset that is outside the restricted group, as reported. Adding GBP 380m to net debt means that adjusted covenant net leverage climbs above 5x and investor estimated pre-IFRS 16 adjusted net leverage climbs above 10x. The HoldCo PIK had previously been disclosed as GBP 291m in size as of 28 February 2022, according to public filings for company entity Tosca IOM Limited.
Maturing in 2026, the PIK is unsecured debt in the shareholder entity and it sits structurally subordinated to the bond issuer group debt, as reported.
Road to refi
In early September, TalkTalk managed to obtain an approximately three-year GBP 75m non-recourse financing facility from KKR, which replaced a receivables facility of the same amount that was coming due the same month.
The company’s debt stack also includes a GBP 330m RCF maturing in November 2024, which ranks pari passu with the senior secured notes and has seen some trading on the secondary market. A GBP 20m piece of the loan cleared an auction in early September in the high-70% to par, as reported.
A group of the RCF lenders in July chose PwC as their advisor to coordinate the financial information that lenders would be receiving ahead of a refinancing, as reported.
The RCF debt had a 3.75x net leverage test at FY22/23 fiscal year-end 28 February 2023 that stepped down to 3.5x in FY23/24, but under a covenant relaxation for the RCF TalkTalk had secured with its banks, the test for the fiscal year end-February 2024 has now been set at 4.95x to give more headroom in case of any downside scenarios. It reported 3.66x net leverage at FY22/23 for covenant purposes.
The net leverage covenant test level then reverts down to 3.5x after the relaxation period ends in February 2024. There is also a minimum liquidity covenant built in during the relaxation period.
RCF lenders include Bank of Ireland, Barclays, Clydesdale Bank, DNB, HSBC, ING, Mitsubishi UFJ Financial Group, and RBS (NatWest), according to Debtwire Par.
TalkTalk declined to comment. Barclays and New Street did not return requests for comment.
