NTL's shareholders, bondholders and banks need look no further than Enron for an example of what might be in store for the troubled cable group if they fail to thrash out a rescue plan.
The company, which has about £12bn of debt, is said to have appointed the investment bank Credit Suisse First Boston to help it restructure its finances and head up a last-ditch effort to stave off collapse.
A frenzied acquisition spree combined with a massive investment in its own network has left NTL with sky-high debts and, analysts estimate, as little as around nine months' worth of cash in the bank.
For Barclay Knapp, NTL's flamboyant chief executive and one of its founders, the prognosis does not look good. Not only does he have a struggle on his hands just to keep the company afloat, he is also left fighting for his job. "He [Mr Knapp] has been a great survivor up to now, but I can't see he'll come out the other side of this one. Someone needs to take the rap. He's toast," one banker said.
Since the company was taken public in 1993, it has invested about $11bn (£8bn) in its own network and has spent another $23bn on acquisitions and buying up stakes in other companies. By far the biggest of those was its £8bn purchase Cable & Wireless's consumer operations, which completed in May 2000. That deal alone, which beat an offer from the rival cable group Telewest, saw NTL take on almost £2bn of debt.
The result is that NTL now needs cash to continue funding its business plan and to meet the interest payments on its debt as well as to finish paying for certain acquisitions as fears mount that the company could breach some of the covenants attached to its borrowings.
While most analysts believe the company has around nine months' of cash left and therefore a nine-month window within which to thrash out a refinancing, others believe the company will have to come up with a plan by May.
NTL is due to pay its 18 per cent-shareholder France Telecom $500m in May to complete the payment of its 27 per cent stake in the French broadband group Noos. "While NTL may have enough cash to pay trade creditors, it probably doesn't have enough to pay France Telecom. So, technically at least, France Telecom could force the company into bankruptcy if it wanted to," one banker said.
On that basis, the May deadline, along with France Telecom's £4bn of preference shares in NTL, give the French company the upper hand in any refinancing negotiations, bankers believe. While bankruptcy cannot be ruled out, they believe it more likely that France Telecom will use its position to encourage bondholders to accept a refinancing package.
"Were the thing [NTL] to go bankrupt, the assets and so on are seen to be enough to cover the secured lending of the banks and France Telecom. Many would argue, therefore, that bondholders are in a much, much better position if they agree to something while the business is still running rather than if it goes bankrupt," one banking source said.
Furthermore, France Telecom, they say, is likely to use its strong bargaining position to strike a better deal over NTL's broadcast division. Talks between the two over the sale of the towers and transmission unit to France Telecom collapsed before Christmas on the issue of price. Consequently, many in the investment community believe the obvious restructuring package for NTL is for the company's bondholders to convert their debt into equity.
Analysts estimate NTL could stomach £6bn of debt – half its current £12bn debt pile. Of the £12bn, around £5bn is bank debt. Recent speculation has suggested such a debt to equity conversion could see bondholders end up with 50 to 70 per cent of a restructured NTL, with shareholders ending up with potentially as little as 15 per cent.
There has also been much talk of an outside investor, possibly Liberty, AOL Time Warner or Microsoft, providing NTL with a cash injection in return for equity. However, as one analyst points out: "If I were Liberty, for example, I'd sit there knowing the longer I waited, the cheaper it [NTL] would get."
Another possibility is that NTL could undergo further internal restructuring, make further cutbacks in its spending plans while eliminating more of its overheads. While analysts believe that would solve some of the short-term problems, they argue such a restructuring would leave NTL competitively disadvantaged over the longer term. "It's just too short term. You might be able to do that for a year but then they'd have no real ability to launch new products and gradually they'd just become more uncompetitive," one analyst said. A merger with Telewest, which many ultimately expect, providing both companies can sort out their finances, still seems the most likely outcome over the longer term.
Whatever the outcome, Mr Knapp will be lucky to emerge with his reputation intact, let alone his job. His reputation had already been dealt a severe blow after it emerged last month that NTL had, last year, invested $15m in the struggling US telecoms group CoreComm.
CoreComm was founded by NTL's chairman, George Blumenthal, in 1998 and is headed by Mr Knapp."One of the filthiest things in his [Mr Knapp's] laundry basket was his investment in his own company," one analyst said.
As for NTL's future, there is still everything to play for even if much of the outcome depends firstly on how flexible France Telecom is prepared to be and secondly on whether all parties involved in the restructuring talks can manage to reach an agreement. "There's a reasonable chance it [a restructuring] can get done. The trouble usually comes when everyone starts arguing," one banker said.
Consequently, investors will be hoping that the company's update statement, expected later this week, does more than just publicly admit that a restructuring is now under way.Reuse content