NTL's shareholders wiped out by $10.6bn debt-for-equity swap

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The Independent Online

NTL yesterday unveiled a rescue package that will see the troubled cable company file for bankruptcy protection in the US following the world's biggest corporate bond default. The refinancing could result in the departure of the chief executive, Barclay Knapp.

The restructuring will see the company file for Chapter 11 protection next month, but NTL emphasised that its day-to-day operations and service remained "unaffected" and would carry on as normal.

"It [the recapitalisation] allows us to resuscitate the company and continue on with the business under, pretty much, a 'business as usual' approach," Mr Knapp said. "If all goes well we could emerge from this process in the August/September timeframe with a completely healthy NTL."

Under the proposed deal, the company's bondholders will seize control of the business by converting about $10.6bn (£7.4bn) of debt into equity while injecting an extra $500m of cash.

The move, which eclipses Enron's $9.9bn default, will save NTL $800m a year in interest payments, and ensures it remains fully funded.

"I've got a huge motivation to fix this – my name is all over it," Mr Knapp said. "I can't emphasise enough I've made mistakes and I'd give a lot not to be in this position in the sense of having to choose a course of action that involves a lot of pain for a lot of people."

NTL hopes to get the plan rubberstamped by its bankers within three weeks after which it will file for Chapter 11 protection. Its operating units will not be included in the filing.

After the company emerges from Chapter 11, its bondholders, who will become its shareholders, will be able to cherry pick the board which could see the existing management team ousted.

"I'm a person who firmly believes that you earn your job every day and if they want me and the rest of the management team to stay on then great," Mr Knapp said, adding he would stay at least until the financial re-engineering had been completed.

The move also reignited speculation that NTL was likely to join forces with rival company Telewest later in the year once both companies had got their businesses in order.

"Putting the cable industry together in the UK would be a good move, but for the last year we've had to get our own house in order and hopefully we'll get that done in the next couple of months and see what happens," Mr Knapp said.

As part of the company's rescue plan, NTL said it expected its existing bank debt, of slightly more than £5bn, to remain within the business.

It said yesterday that the deal would see it divided into two businesses – NTL UK and Ireland and NTL Euroco. The company's bondholders will gain 100 per cent of the UK business and about 86.5 per cent of the European operation.

The company's shareholders, including France Telecom with an 18 per cent stake, could, at the most, eventually end up with 32.5 per cent of the company if all rights and warrants are exercised.

France Telecom, which has invested about €8bn (£5bn) in NTL, will end up with warrants over a 22.5 per cent stake in the company. It had already written its investment down to about €1.8bn.

In addition, it will get back the 27 per cent stake in Noos that it had sold to NTL in 2000. NTL had been due to pay France Telecom about €600m in May to complete that deal.

Jean-Louis Vinciguerra, France Telecom's finance director, said he was "confident" the company would recover its €1.8bn investment but said France Telecom would not be an NTL shareholder in future and planned to sell its warrants.

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