NTL to Split, File for Chapter 11

After months of trying to work out its debt problems on its own, troubled United Kingdom cable and telephony provider NTL Inc. has reached an agreement with an informal group of bondholders that will split the company in two and result in a Chapter 11 bankruptcy filing.

Pressured for months to pare down its $17 billion in debt, NTL on April 16 announced a deal that will retire $10.6 billion in bond debt in exchange for equity control in the company.

According to a press release, NTL said it would split into two companies — NTL U.K. and Ireland, and NTL Euroco. Current bondholders would own 100 percent of NTL U.K. and Ireland, and about 86.5 percent of NTL Euroco.

Bondholders also will provide about $500 million in new financing to the U.K. and Ireland operations.

Shareholders, including France Telecom — which owns an 18 percent stake in NTL — would also receive the right to acquire shares in the two new companies.

NTL is the largest cable operator in the U.K., with about 3 million subscribers. In Ireland, the company has about 370,000 cable customers.

NTL's other European operations, with about 3.8 million customers, are in Switzerland, Germany, France and Sweden.

To facilitate the debt-to-equity conversion, NTL said it would file a prepackaged Chapter 11 bankruptcy in the United States — where it is based — at a later date.

"We are currently working with all parties in our capital structure, including the company's bank lenders, to finalize these arrangements," NTL CEO Barclay Knapp said in a statement. "The U.S.-based Chapter 11 process will allow NTL to reorganize and re-emerge stronger and healthier and without affecting operations."

Knapp and his management team have been under fire for months, as NTL stock sank to all-time lows. Shares in the MSO have fallen 98 percent in the past six months, from $4.55 per share on October 15 to 9 cents on April 15.

The NASDAQ delisted NTL last month, after the company failed to maintain a share price of at least $1 each for 30 consecutive days. In the days after the restructuring announcement, NTL stock more than tripled, from 9 cents to 29 cents each.

Knapp and his team will stay with NTL through the bankruptcy filing. After that, bondholders will determine his fate.

NTL's next step is to obtain approval from its banks, said company spokesman Steve Lipin. Once that is done, NTL can proceed with the prepackaged Chapter 11 filing.

The bankruptcy will not involve NTL operating entities, but will affect several holding companies that were used as financing vehicles, he said.

It's unclear what bondholders will eventually do once they take control of the company. Most observers believe they'll wind up selling their stakes in NTL, but only after the company has righted itself.

The creditors might wait as long as 12 to 18 months before selling NTL, giving the company enough time to turn itself around, said Janco Partners cable analyst Matt Harrigan.


"They wouldn't sell it right away," Harrigan said, adding that the possible buyers — Liberty Media Group and AOL Time Warner Inc. — are in no position to pay a high price for NTL stock.

Liberty appears to be the most logical choice as an NTL suitor, mainly because it owns a 25 percent stake in Telewest plc, the No. 2 U.K cable company.

While many analysts had speculated that Liberty would seek to combine Telewest and NTL — and the split appears to facilitate such a combination — Harrigan said there are different reasons for the move.

The bulk of the NTL Euroco assets are from the company's Swiss Cablecom unit, which counts about 1.5 million subscribers and about $100 million in annual cash flow. But those assets also carry about $1.8 billion in bank debt.

"Some of it is bondholders in the U.K. wanting to be insulated against any further issues at NTL Europe," Harrigan said. "I believe that was part of the rationale for the split, as well as wanting to do a deal with Telewest."

Given the alternatives, Harrigan added, the agreement with its bondholders was probably the best deal NTL could do.

"This is the best deal in terms of the viability of the company," Harrigan added. "They had to do something to address the balance sheet. It certainly is a deal that should enable NTL to have quite an attractive business going forward."

Lipin said that the debt-for-equity swap is not a precursor for future deals.

"Nothing they [bondholders] have done precludes any strategic transaction down the road," Lipin said.

The debt problems have overshadowed what was a relatively good year for NTL. The company hit its revenue and cash flow targets, despite pressures to restructure its debt.

Revenue for 2001 was $2.57 billion, in line with guidance of $2.6 billion.

The company also reported year-end cash flow of $159 million, beating its previous estimate by $4 million. NTL reported a loss of $12.75 billion, or $46.46 per share, largely because of a write-down of $11 billion in intangible assets and investments in unconsolidated affiliates.