Debt-for-equity swap to reduce life-threatening debt

LONDON — British cable group NTL pulled off one of the world’s biggest corporate rescues Tuesday, coaxing bondholders to accept a record $10.6 billion corporate bond default in return for company ownership.

The debt-for-equity swap will reduce NTL’s life-threatening $17 billion of bond and bank debt. NTL and its non-operating subsidiaries will file for U.S. Chapter 11 bankruptcy but will still be free to do business.

NTL, the larger of Britain’s two cable firms, ran up debts through an acquisition binge at the height of the 1990s technology boom. The huge interest payments, which are now set to fall by around $850 million a year, have overshadowed what analysts believe to be a viable business.

Britain’s other cable group, Telewest, saw its shares fall and bonds rise on speculation it would follow suit with a debt swap.

NTL’s restructuring amounts to a default on $10.6 billion of bonds, compared with the record $9.9 billion corporate bond default of collapsed U.S. energy trader Enron.

While credit rating agency Standard & Poor’s noted NTL would not technically go into default until 30 days after missing its bond payments, analysts said the restructuring implied it.

One of several

NTL sits on a growing list of pay TV companies in financial strife. Cable group United Pan-Europe Communications is bleeding cash, Britain’s ITV Digital is on the brink of collapse and Germany’s Kirch is at the mercy of creditors.

Under a deal agreed upon with a bondholder committee representing more than half of NTL bonds, $6 billion of loans will stay in place after the restructuring. Trade credit and bonds for subsidiaries Diamond and Triangle would also remain. The rest of the debt would become equity.

The agreement includes a $500 million cash injection from bondholders. NTL will be split into Brit and Irish operations as well as Euroco, including noncore continental European assets such as Switzerland’s Cablecom, which NTL failed to sell last year.

Deal is conditional on, among other things, agreement with the banks, and chief exec Barclay Knapp said he expected to exit the process by August or September.

Shareholder rights

Existing NTL shareholders, who have watched the common stock drop from over $38 in early 2001 to just 7ยข — equaling a valuation of just under $20 million — will be given rights to buy up to 32.5% of the overhauled cable group.

Top shareholder France Telecom said it would not exercise its warrant to buy about 22.5% of NTL but would hold on with a view to selling it and recouping the $1.6 billion value it still gives its NTL stake. NTL said France Telecom may get NTL’s 27.7% stake in top French cable operator Noos, controlled by Suez.

NTL has 1.25 million U.K. subscribers and offers customers digital TV, phone and Internet access through its cable network, competing with market leader BSkyB and ITV Digital in digital TV and BT for phone lines.

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