Sir Charles and TalkTalk’s other main shareholders, led by private equity firm Toscafund, have said they are willing to pump an extra £200m into the company. If confirmed, this would ensure it can keep operating in the short term.
However, discussions are still ongoing and it is thought that the shareholders will demand a debt reduction from lenders in exchange for the funding. Should a breach occur next month, TalkTalk will have a grace period until October 30 to secure new terms.
TalkTalk is also still facing uncertainty over debts totalling more than £1bn that are due for repayment in the coming months.
A £330m revolving credit facility is due for refinancing in November. The Telegraph revealed in May that the banks behind the loan are looking to reduce their exposure to as little as £150m. TalkTalk also has £685m in bonds due for repayment in February 2025.
The escalating debt crisis comes amid a squeeze on TalkTalk’s underlying broadband business, which has been hit by tough competition and surging inflation.
TalkTalk’s pre-tax loss ballooned from £70m to £127m in the year to March as inflation drove up operating costs. The company also saw its finance costs increase from £106m to £134m as interest rates hit their highest level in 16 years, with interest on loans jumping from £44m to £74m.
TalkTalk’s customer base declined by 334,000 over the year as it slashed sales and marketing costs. The company said it had also refocused its customer strategy on “value over volume”.
Sir Charles and Toscafund, which is led by Martin “the Rottweiler” Hughes, took TalkTalk private in 2020 after loading the company up with huge debts. However, surging interest rates have stretched the company’s finances to breaking point, forcing bosses to push through a radical break-up plan.
TalkTalk sold its business division to a group of existing shareholders for £95m last year, while its consumer arm is also expected to be put up for sale.
The company has also been in talks since the beginning of the year to sell a large stake in its wholesale division to Macquarie for £450m in a bid to pay off some debt, but a deal is yet to materialise.
It is thought that the Australian investment bank recently increased its offer to £500m in exchange for a larger stake.
If TalkTalk fails to refinance its debts, lenders could seize control of the company. Private credit fund Ares Management, which is now a major shareholder in TalkTalk, has called in restructuring experts to advise on its options.
James Smith, TalkTalk’s chief financial officer, said: “We anticipate agreement on new capital investment into the business in the near future, and discussions to achieve that are ongoing. Engagement continues with a potential new investor, together with potential new lenders.
“At the same time, the group’s existing shareholders have confirmed their intent to provide new funding of over £200m into the group to support working capital and operational costs.
“Those shareholders and the company are in dialogue with existing group lenders, or their advisers, regarding the optimal route to put that funding into the business.”
