Announcement of Proposed Restructuring
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM ANY OTHER JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
For immediate release
13 December 2017
Avanti Communications Group PLC
Announcement of Proposed Restructuring
Avanti Communications Group PLC (AIM: AVN), (“Avanti”, the “Company” and, together with its subsidiary undertakings, the “Group”) today announces that it has entered into an agreement (the “Restructuring Agreement”) with noteholders representing approximately 62% of its outstanding 2021 Notes (as defined herein) and 55% of its outstanding 2023 Notes (as defined herein) (together, the “Majority Holders”) and shareholders representing 34% of its existing issued share capital (the “Major Shareholders”) to implement a restructuring (the “Restructuring”) of the Group’s indebtedness. The Restructuring, the material terms of which are described below, would, if implemented, substantially reduce the Company’s outstanding indebtedness, decrease its future interest expense and potentially raise new liquidity.
Summary of the Restructuring
Debt for equity swap for the 2023 Notes
In order to substantially reduce its outstanding indebtedness and significantly decrease its future interest expense, the Company will seek to implement an exchange (the “Debt for Equity Swap”) of all of its outstanding 12%/17.5% Senior Secured Notes due 2023 (the “2023 Notes”) for approximately 2 billion new ordinary shares of 1 pence each in the capital of the Company (“New Ordinary Shares”), which will represent approximately 92.5% of the Company’s issued ordinary share capital following completion of the Debt for Equity Swap (the “Enlarged Share Capital”).
As of the date of this announcement, the Company has US$557 million in aggregate principal amount of 2023 Notes outstanding.
It is proposed that the Debt for Equity Swap will be implemented through a Court-approved scheme of arrangement pursuant to Part 26 of the Companies Act 2006 (the “Scheme”).
In order to approve the Scheme, a majority in number of noteholders representing at least 75% in aggregate principal amount of the 2023 Notes held by those holders present in person, or by proxy at a meeting of holders, must vote in favour of the Scheme.
It is expected that, immediately following the Debt for Equity Swap, Solus Alternative Asset Management LP (“Solus”) would hold approximately 41.5% of the Enlarged Share Capital. Accordingly, in order to avoid Solus being required to make a general offer for the existing issued share capital not already held by it, the Company will seek the prior approval of the Takeover Panel and, subsequently, the approval of independent shareholders at a general meeting for a dispensation from Rule 9 of the City Code on Takeovers and Mergers (the “Rule 9 Waiver”).
Avanti will therefore convene a general meeting of its shareholders (the “General Meeting”) for the purposes of obtaining the necessary approvals to, inter alia, allot the New Ordinary Shares pursuant to the Debt for Equity Swap and to obtain the approval from a majority of independent shareholders, on a poll, of the Rule 9 Waiver.
It is expected that a circular containing, amongst other things, further details of the Debt for Equity Swap, the Scheme and the notice of the General Meeting will be published during the first quarter of 2018.
Amendment of 2021 Notes
In addition to the proposed reduction in indebtedness and interest expense resulting from the Debt for Equity Swap, the Company will seek to further decrease its future interest expense, improve its debt maturity profile and liquidity and eliminate onerous financial covenants by amending certain terms of its 10%/15% Senior Secured Notes due 2021 (the “2021 Notes”) in order to:
- extend the final maturity date of the 2021 Notes from 2021 to 2022;
- permit the issuance of up to $30 million of additional 2021 Notes;
- eliminate the Maintenance of Minimum Consolidated LTM EBITDA covenant contained in the indenture governing the 2021 Notes;
- change the interest rate payable on the 2021 Notes for all remaining interest periods commencing 1 October 2017 from 10% cash interest and 15% payment in kind (“PIK”) interest to 9% cash interest and 9% PIK interest;
- eliminate the margin increase payable on the 2021 Notes if the relevant Minimum Consolidated LTM EBITDA threshold was not met; and
- permit interest payments on the 2021 Notes to be paid as PIK interest if Avanti does not have sufficient cash to satisfy the applicable interest coupon,
(collectively, the “90% Proposed Amendments”).
In order to implement the 90% Proposed Amendments, the Company will seek consents from holders of the 2021 Notes to the 90% Proposed Amendments pursuant to a consent solicitation (the “2021 Consent Solicitation”). Approval of the 90% Proposed Amendments requires consent from holders representing at least 90% in aggregate principal amount of the 2021 Notes (the “90% Requisite Consents”).
In the event that the 90% Requisite Consents are not received in the 2021 Consent Solicitation, the Company will seek to implement the 90% Proposed Amendments pursuant to the terms of a scheme of arrangement. Implementation of the 90% Proposed Amendments pursuant to a scheme of arrangement will be conditioned upon, among other things, a majority in number of holders of 2021 Notes representing at least 75% in aggregate principal amount of the 2021 Notes held by those holders present in person or by proxy at a meeting of holders voting in favour of the scheme of arrangement.
The implementation of each of the Debt for Equity Swap and the 90% Proposed Amendments will be conditional on the other.
Common Amendments and Waivers
Avanti will also concurrently commence consent solicitations with respect to both the 2021 Notes and the 2023 Notes to amend and waive certain standard events of default that might otherwise be triggered by the Restructuring.
Summary of the Restructuring Agreement
The Restructuring Agreement sets out the terms and conditions pursuant to which the Majority Holders and Majority Shareholders have agreed with Avanti that they will take certain actions to support the implementation of the Restructuring, including, among other things, consenting to the 90% Proposed Amendments and the Debt for Equity Swap, voting in favour of the Scheme, and approving the Enlarged Share Capital and the Rule 9 Waiver.
In the Restructuring Agreement, the parties agree that if the Takeover Panel determines that any provision of the agreement that requires Avanti to take or not take any action, whether as a direct obligation or as a condition to any other person’s obligation (however expressed), is not permitted by Rule 21.2 of the City Code on Takeovers and Mergers, that provision shall have no effect and shall be disregarded.
Potential capital raise
Following and contingent upon the adoption of the 90% Proposed Amendments and the completion of the Debt for Equity Swap, the Company may seek to raise circa $30 million of additional capital in the New Year. This potential capital raise may take the form of new equity and/or additional 2021 Notes. Should the Board decide to proceed with such a capital raise it will update shareholders accordingly.
Related Party Transactions
The entering into of the Restructuring Agreement with M&G Securities Limited and Solus (together, the “Related Parties”), who hold approximately 16.9% and 15.9%, respectively, of the Company’s existing issued ordinary share capital, constitutes a related party transaction in respect of each of the Related Parties, pursuant to Rule 13 of the AIM Rules for Companies (the “Related Party Transactions”). The independent directors of Avanti (namely Paul Walsh, Alan Harper, Nigel Fox, David Bestwick, Andy Green, Paul Johnson, Richard Mastoloni and Chris McLaughlin) consider, having consulted with Cenkos Securities plc (“Cenkos”), the Company’s nominated adviser, that the terms of the Related Party Transactions are fair and reasonable insofar as the Company’s shareholders are concerned.
Positive outcome for the Group and its shareholders
The directors of Avanti believe that the Restructuring, if implemented, will help to create a sustainable long-term capital structure and is in the best interest of all those with an economic interest in the Group. Consummation of the Debt for Equity Swap pursuant to the Scheme would result in the capitalisation of US$557 million in aggregate principal amount of 2023 Notes and approximately US$81 million in interest expense savings per year. Adoption of the 90% Proposed Amendments, either pursuant to the 90% Consent Solicitation or, if applicable, a scheme of arrangement, would result in interest expense savings of approximately US$11million per year, as a result of the elimination of the margin increase and assuming the Company pays interest at 9% on the 2021 Notes for all remaining interest periods.
It should be noted that the proposals set out in this announcement are subject to various conditions, including the agreement of definitive legal documentation. There is, therefore, no certainty that such definitive legal documentation will be agreed or that the Debt for Equity Swap and the 90% Proposed Amendments will proceed. If the Restructuring is not successful, then based on the projected cash flows of the Group or without generating additional cash flow from operations in the near to medium term, the Company could at some point in the future become unlikely to pay its debt obligations under the 2021 Notes and 2023 Notes as and when they fall due for payment. Should this occur, the existing equity may have little or no value.
The person responsible for arranging the release of this announcement on behalf of the Company is Patrick Willcocks, Company Secretary and General Counsel.
|Avanti||Nigel Fox, Patrick Willcocks
Tel: +44 20 7749 1600
|Cenkos Securities (Nomad)||Max Hartley, Mark Connelly, Nicholas Wells
Tel: +44 207 397 8900
|Montfort||Nick Miles, Tel: +44 7973 130669
James Olley, Tel: +44 7974 982302
This announcement may contain forward-looking statements regarding future events or the future financial performance of Avanti. You can identify forward looking statements by terms such as “expect”, “believe”, “estimate”, “anticipate”, “intend”, “will”, “could”, “may”, or “might”, the negative of such terms or other similar expressions. These forward-looking statements include matters that are not historical facts and statements regarding Avanti’s intentions, beliefs or current expectations concerning, among other things, the expected outcome of the Restructuring. By their nature, forward-looking statements involve risks and uncertainties, because they relate to events and depend on circumstances that may or may not occur in the future. Avanti cautions you that forward-looking statements are not guarantees of future performance and that Avanti’s actual results may differ materially from those described in or suggested by the forward-looking statements contained in this announcement. In addition, even if Avanti’s results are consistent with the forward-looking statements contained in this announcement, those results or developments may not be indicative of results or developments in future periods. Avanti does not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in forward-looking statements of Avanti, including, among others, general economic conditions, the competitive environment and the many other risks specifically related to Avanti and its operations, including those discussed in this announcement.
This announcement is for information purposes only and is not intended to, and does not, constitute or form part of any offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities whether pursuant to this announcement or otherwise. The terms of each of the Debt for Equity Swap, the 90% Consent Solicitation and the Majority Consent Solicitations, if commenced, will be contained in the relevant offering and related documents and will be distributed to holders in accordance with the terms therein.
The distribution of this announcement in jurisdictions outside the United Kingdom may be restricted by law and therefore persons into whose possession this announcement comes should inform themselves about, and observe such restrictions. Any failure to comply with the restrictions may constitute a violation of the securities law of any such jurisdiction.
In particular, this announcement is not an offer of securities for sale in the United States. Securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933. Any securities mentioned herein have not been and will not be registered under the United States Securities Act of 1933, and no public offering will be made in the United States.
Unless otherwise stated, no statement in this announcement is intended to be a profit forecast or estimate and no statement in this announcement should be interpreted to mean that earnings per share of the Company for the current or future financial years would necessarily match or exceed the historical published earnings per share of the Company.
Cenkos is authorised and regulated by the Financial Conduct Authority in the United Kingdom and is acting exclusively for the Company and no one else in connection with the Related Party Transactions, and Cenkos will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Related Party Transactions or any other matters referred to in this announcement.
Date: 13 December 2017