Berlin, 22.11.2023
As previously announced on 11 November 2023, Tele Columbus AG (the Company), one of the leading operators of fiber networks in Germany, is pleased to announce it has agreed the main commercial terms of a transaction (the Transaction) with Morgan Stanley Infrastructure Partners, the Company’s largest indirect shareholder (the Supporting Shareholder) and an ad hoc group of its financial creditors (the Ad-Hoc Group) that consists of a majority of the creditors under its €462 million term loan facility (SFA) and its €650 million senior secured notes (SSNs).
Key features of the Transaction, as described in this announcement include a €300 million equity contribution (the Equity Commitment) from the Supporting Shareholder (including the principal of the shareholder loans already disbursed in 2023) and an extension of its debt maturities at par under the SFA and SSNs to October 2028 in return for a margin uplift.
The Transaction provides the Company with significant fresh capital, a strengthened balance sheet and sufficient maturity runway in order to allow management to focus on the successful implementation of the build out of its Fiber Champion strategy. The equity injection will fully fund the transformational strategic plan and reflects the conviction of the major shareholder about the long-term prospects of the Company.
Key highlights include:
- A €300 million equity capital contribution to support the Company’s strategic plan to gradually convert its existing infrastructure, in consultation with the housing industry, into fiber-optic networks
- Debt maturities of the SFA and SSNs extended at par until October 2028
- Conversion of substantially all current cash interest to payment-in-kind with an increase in margin on both instruments plus an Exit Fee ratchet that kicks in three years post-closing and increases until four years post-closing of the Transaction
The Company has entered into a lock-up agreement appending a commercial term sheet with all members of the Ad-Hoc Group pursuant to which, among other matters, such creditors have agreed to support the implementation of the Transaction (the Lock-Up Agreement). Further details in respect of the terms of the Transaction, instructions to lenders under the SFA (the Lenders) and holders of the SSNs (the Noteholders) to accede to the Lock-Up Agreement, description of the consents relating to the implementation of the Transaction and available consent fees (including the early consent fee available to Lenders and Noteholders who accede to the Lock-Up Agreement before the Early Consent Deadline of 12 December 2023) are set out below.
Markus Oswald, CEO of the Company, commented:
“With this milestone, Tele Columbus can continue the successful expansion of the network to fiber. We will tackle this together with our partners in the housing industry and in the interest of all our customers.”
Trading Update
EUROPE-LEGAL-283606419/1 179149-0001
The Company is pleased to announce that its recent performance has been strong, with revenue for the first 9 months of 2023 remaining stable at c. €333 million, reflecting a shift from TV to internet (including a continued shift of customers towards higher bandwidths) and telephony. Tele Columbus‘ growth in Internet Provider gross profit in Q3 2023 and year to date period outweighed the decline in TV gross profit during the same period. Adjusted normalized EBITDA for Q3 stood at €49 million (+5.2% on a year-on-year basis), as a result of the accelerated fiber roll-out. Capex amounted to €53 million during the Q3 2023 period reflecting the continued high level of network infrastructure investments throughout 2023.
The strong performance highlights the following underlying KPI’s:
- Record year-on-year growth for new Internet customers in Q3 2023;
- Over one-third of such new Internet customers having selected bandwidths of 400 Mbit/s or more; and
- Moderate decline of 7,000 Revenue Generating Units in Q3 2023 for households with TV products
Tele Columbus recorded an over 7% increase in new Internet customers year on year with another +10k net adds in Q3 2023, making Tele Columbus the fastest growing fiber network operator in Germany, as it continues to outperform competitors. This echoes the trend from the last few quarters. The second fastest growing competitor achieved a growth rate of c. 4.0%.
A third of the new customers acquired in Q3 2023 have booked 400 Mbit/s or more. Bandwidths of up to 120 Mbit/s currently account for 17%+ share, driven by special promotions. Specifically in Munich, a further 270,000 households were recently upgraded to 1,000 Mbit/s (Gigabit Internet) under the PŸUR brand. A total of 2.1 million households are now supplied with gigabit under the PŸUR brand.
The number of households supplied with TV declined by 7,000 in Q3 2023. However, 7,000 new customers were acquired for premium TV products on a year-on-year basis. The Company also started a new hybrid platform, PŸUR TV with a soft launch.
For further information, please contact: Investor Relations team at ir@telecolumbus.de
Further details on the terms of the proposed transaction
Equity Commitment[1]
The Supporting Shareholder has committed in the equity commitment letter (the Equity Commitment Letter)to fund the Equity Commitment in order to support the Transaction. The Supporting Shareholder intends to conduct a capital increase of Kublai GmbH (the majority shareholder of the Company) in order to fund the Equity Commitment. The Equity Commitment may be funded in full by the Supporting Shareholder potentially together with another indirect shareholder of the Company (via Kublai Gmbh).
The Equity Commitment will be provided to the Company in exchange for common and / or preferred equity or via subordinated debt, with either:
- all €300,000,000 to be provided upon the completion of the Transaction (Closing); or
- €180,000,000 to be provided at Closing; and €120,000,000 within the earlier of 12 months of Closing or, if necessary, to cure or prevent financial covenant breaches.
The Equity Commitment will be reduced for the principal of the amounts already provided under the shareholder loans dated 25 July 2023 and 30 August 2023. Such shareholder loans shall no longer be outstanding after Closing of the Transaction.
The Supporting Shareholder has entered into a letter (the Shareholder Support Letter) addressed to creditors who locked up to the Lock-Up Agreement, where it agrees to support the implementation of Transaction on similar terms to those binding creditors under the Lock-Up Agreement. The Supporting Shareholder has agreed to provide sufficient further funding in order to enable the implementation of the Transaction as part of the (total €300,000,000 Equity Commitment).
Proposed Amendments to the SSNs and SFA
As part of the Transaction, it is proposed that certain changes are made to the terms of both the SFA and the SSNs, including but not limited to, the following amendments to the terms of the SFA (to create the Amended SFA) and the issuance of new senior secured notes to replace the SSNs (the New SSNs) and together with the Amended SFA, the New Finance Documents:
- maturities under both the SFA and SSNs will be extended, from October 2024 under the SFA and May 2025 under the SSNs, to October 2028;
- conversion of substantially all current cash interest to payment-in-kind with an increase in margin on both instruments to a 10% yield equivalent plus an exit fee ratchet that reaches 4% at four years post-closing of the Transaction:
- the interest under the New SSNs will increase to 10.00% p.a. (payable in kind, semi-annually), reduced by 0.5% p.a. for every €25,000,000 of cash equity contribution provided in addition to the Equity Commitment (i.e. after the Equity Commitment is satisfied in full) and if not applied for purposes of building capacity to incur super senior Indebtedness under the credit facility basket or the contribution debt basket (subject to a floor of 8.00% p.a.).
- the interest under the Amended SFA will increase to EURIBOR (subject to a floor of 6%) plus a margin of 4% p.a. (including a minimum cash pay of 50 bps), reduced by 0.5% p.a. for every €25,000,000 of cash equity contribution provided in addition to the Equity Commitment (i.e. after the Equity Commitment is satisfied in full) and if not applied for purposes of building capacity to incur super senior Indebtedness under the credit facility basket or the contribution debt basket (subject to a margin floor of 2.00 p.a.).
- an exit fee of 2.5% will be payable after three years from Closing, increasing to 4.0% four years from Closing, payable on an Exit Event as defined in the commercial term sheet attached to the Lock-up Agreement (which includes refinancing, mandatory or voluntary prepayment, change of control, and sale of substantially all assets) (the Term Sheet);
- the following minimum liquidity covenants (the Liquidity Covenant) will apply:
- a first covenant set at a minimum liquidity threshold of €35,000,000, a breach of which will result in additional reporting obligation to the holders of the New SSNs and lenders under the Amended SFA; and
- a second covenant set at a minimum liquidity threshold of €20,000,000, a breach of which will result in an event of default under each of the New Finance Documents.
In each case, compliance with the Liquidity Covenant will be measured by a monthly backward-looking liquidity test and a 13-week forward-looking cash flow forecast (based on cash, cash equivalents and amounts available under any equity commitment letter within 10 business days) and will be subject to certain equity cure rights;
- inclusion of a performance covenant requiring quarterly director statements on and from the date falling three years after Closing, confirming that the Company’s performance remains in compliance with the Restructuring Opinion (as defined in the Lock-Up Agreement), a breach of which would result in additional reporting obligations to the creditors; and
- all interest due and accrued up to 2 October 2023 under both the SFA and the SSNs will be paid in cash at Closing. Accrued and unpaid interest, if any, in respect of the SFA and the SSNs from 3 October to (but excluding) Closing shall be capitalized at Closing (subject to the SSN/SFA Election as defined below). Accrued and unpaid default interest, if any, under both the SFA and the SSNS, up to and including Closing shall be waived (and for the avoidance of doubt, shall not be paid in cash or capitalised on Closing).
- Each eligible holder of the New SSNs (subject to the SSN/SFA Election, as defined below) will receive an amount of cash equal to interest accruing on the principal amount of their holdings for the period from 3 October up to and including 2 December. Each holder of the New SSNs shall have their capitalised interest reduced on a € for € basis by the cash payment received.
SSN/SFA Election
Each Lender and each eligible Noteholder will have the right to elect to convert their SFA commitments and SSN holdings (as applicable) into an equivalent principal amount in respect of the Amended SFA and New SSNs (as applicable) at Closing (subject to applicable caps, floors and apportionment as set out in the Term Sheet) (the SSN/SFA Election).
Intermediate Holdco
The Company will, on or prior to Closing, insert two Luxembourg-incorporated companies as subsidiaries of the Company, security over which will be granted in favour of creditors under the New Finance Documents.
Implementation of the Transaction
The Equity Commitment and the implementation of the amendments to the New Finance Documents, as described above, will be fully inter-conditional. In the event it is not possible to implement the Transaction on a fully consensual basis, the Company may implement the Transaction through other means, including: (i) English scheme of arrangement under Part 26 of the Companies Act 2006 (the Scheme) or a restructuring plan under part 26A of the Companies Act 2006 (Restructuring Plan) and/or (ii) a restructuring plan pursuant to the German Act on the Stabilisation and Restructuring Framework for Enterprises (Gesetz über den Stabilisierungs- und Restrukturierungsrahmen für Unternehmen) (StaRUG).
The Transaction, including the Equity Commitment and the extension of the debt maturities on the terms outlined above, remains subject to tax analysis and is conditional on the agreement of the final transaction structure and documentation.
Lock-Up Agreement
The Company and members of the Ad-Hoc Group, representing a majority of the creditors under the SSNs and the SFA have entered into the Lock-Up Agreement. All holders of the SSNs and lenders under the SFA are invited to follow the steps set out in the paragraph below entitled Next Steps to access and accede to the Lock-Up Agreement.
The key terms of the Lock-Up Agreement include:
- the Consenting Creditors undertake to support the implementation of the Transaction (including via a Scheme, a Restructuring Plan and/or StaRUG subject to the meeting of key milestones as set out in the Lock-Up Agreement and certain customary termination rights; and
- provided that completion of the Transaction is successfully implemented, and subject to the conditions of the Lock-Up Agreement, each creditor that accedes to the Lock-Up Agreement (as a Consenting Creditor or Abstaining Creditor, together the Locked-Up Creditors, with the principal amount of the SSNs and / or SFA held by such Locked-Up Creditors being the Locked-Up Debt) will receive its pro rata share of a consent fee upon Closing as follows:
- any Locked-Up Creditor who accedes to the Lock-Up Agreement before the Early Consent Deadline of 12 December 2023 will receive an amount equal to 0.125% of the principal amount of the Locked-Up Debt beneficially held by such Locked-Up Creditor at the Early Consent Deadline (together with any Locked-Up Debt that such Locked-Up Creditor acquires after the Early Consent Deadline, in accordance with the terms of the Lock-Up Agreement), to be capitalised and paid as an allocation of the New SSNs and/or participation in the SFA (as applicable) upon Closing, and
- any Locked-Up Creditor who accedes to the Lock-Up Agreement as at the Late Consent Deadline of 30 January 2024 will receive an amount equal to 0.125% of the principal amount of the Locked-Up Debt beneficially held by such Locked-Up Creditor at the Late Consent Deadline (together with any Locked-Up Debt that such Locked-Up Creditor acquires after the Late Consent Deadline, in accordance with the terms of the Lock-Up Agreement), to be capitalised and paid as an allocation of the New SSNs and/or participation in the SFA (as applicable) upon Closing.
The key provisions of the Lock-Up Agreement will become effective upon, among other things, creditors representing more than 662/3% of the total outstanding debt under the SFA and more than 50% of the total outstanding debt under the SSNs acceding to the Lock-Up Agreement as Consenting Creditors, which the Company expects to occur in the coming weeks.
The Company is in parallel seeking consents from the holders of the SSNs and lenders under the SFA to, among other things, provide waivers for any defaults that may arise as a result of the Company implementing the Transaction (including via a Scheme, a Restructuring Plan and/or StaRUG) (the Preliminary SSN Amendments and the SFA Consent Request (as applicable)).
The Company will request from the holders of the SSNs and the lenders under the SFA, and under the Lock-Up Agreement all Locked-Up Creditors will be obliged to support:
- a deferral of the payment of the SSN coupon due on 2 November 2023 and a forbearance from any enforcement action related to non-payment of such coupon until the earlier of the completion of the Transaction or termination of the Lock-up Agreement;
- the extension of the grace period for non-payment of interest under the SSNs until the earlier of the completion of the Transaction or termination of the Lock-up Agreement; and
- a deferral of the interest payment due under the SFA on 30 December 2023 and a forbearance from any enforcement action related to non-payment of such interest until the earlier of the completion of the Transaction or termination of the Lock-up Agreement.
Next Steps
Any creditor which would like to become party to the Lock-Up Agreement will need to fill out and sign an accession letter (Creditor Accession Letter) in the form appended to the Lock-Up Agreement.
The Term Sheet and the Lock-Up Agreement (including the form of the Creditor Accession Letter) are available at https://deals.is.kroll.com/telecolumbus (the Portal), a password protected website maintained by Kroll Issuer Services Limited (the Calculation Agent). All holders of the SSNs and lenders under the SFA are invited to take the following steps to access and accede to the Lock-Up Agreement (the Accession Mechanics):
To access the documentation:
- go to https://deals.is.kroll.com/telecolumbus;
- read the disclaimer and click on “I agree”;
- request a password by clicking on “Click here to request a password”. The password will be sent to you via the email;
- click on the link “Click here to access to the documentation on the password protected site”;
- a new page will open where you should enter the password received earlier; and
- you will then be able to view and download any materials related to the transaction.
To accede to the Lock-Up Agreement:
- enter the password protected Portal as described above;
- click on “Creditor Accession Letter (Online version)”;
- fill in the required details and click “Submit”; and
- you will then receive an email confirmation that your accession has been received.
The Calculation Agent shall be responsible for compiling the Creditor Accession Letters. The Information Agent will provide any creditor which wishes to become party to the Lock-Up Agreement with a word version of the Accession Letter on request.
A Locked-Up Creditor must consent to the Preliminary SSN Amendments and the SFA Consent Request (as applicable) as an entirety and may not consent selectively with respect to certain Preliminary SSN Amendments and SFA Consent Requests (as applicable). Holders of the SSNs and lenders under the SFA that do not accede to the Lock-Up Agreement are entitled to vote on the Preliminary SSN Amendments and the SFA Consent Request (as applicable).
Copies of the Shareholder Support Letter and the Equity Commitment Letter will be made available to Locked-up Creditors once they have acceded to the Lock-Up Agreement upon request to the Calculation Agent by that Locked-Up Creditor.
Further details in respect of the Transaction and any proposed Scheme or RP and/or StaRUG will be published on the Portal in due course.
For any enquiries relating to the Portal and/or the Accession Mechanics, please contact:
Kroll Issuer Services Limited, Calculation Agent
The Shard
32 London Bridge Street
London SE1 9SG
United Kingdom
Attn: Illia Vyshenskyi
Telephone: +44 20 7704 0880
Email: telecolumbus@is.kroll.com
Website: https://deals.is.kroll.com/telecolumbus
For queries on the terms of the proposed transaction creditors can contact the advisors of the AHG:
Milbank: MilbankTC@milbank.com
Houlihan Lokey: TeleColumbusHL@hl.com
Disclaimer
This press release has been prepared by the Group solely for informational purposes and does not constitute, and should not be construed as, an offer or invitation to sell or issue securities or otherwise constitute an invitation or inducement to any person to become a member of, to apply for, exchange, purchase, underwrite, subscribe to or otherwise acquire securities in or issued by any Group entity or any other person.
This announcement has been prepared by the Group for information purposes only, and no recommendation is being made as to whether holders of the Notes should consent to the Transaction. If any holder of the Notes is in any doubt as to the action it should take or is unsure of the impact of the implementation of the Transaction, it is recommended to seek its own financial, accounting and legal advice, including as to any tax consequences, immediately from its stockbroker, bank, manager, solicitor, accountant or other independent financial, legal or tax adviser. Any individual or company whose Notes are held on its behalf by a broker, dealer, bank, custodian, trust company or other nominee or intermediary must contact such entity if it wishes to consent to the Transaction. Any deadlines set by any intermediary or clearing system may be earlier than the deadlines specified in the Transaction. None of the Company, the guarantors under the indenture governing the Notes, the trustee, the Information and Tabulation Agent or any person who controls, or is a director, officer, employee, agent of any such person, or any affiliate of any such person makes any recommendation whether holders of the Notes should consent to the Transaction and assumes any liability in relation to the Transaction.
This press release does not constitute (i) a tender or exchange offer for, or an offer to sell, or a solicitation of an offer to buy, the Notes or (ii) an offer of, an invitation to offer, or a solicitation of an offer to buy, securities for sale in the United States or any other jurisdiction. The distribution of this announcement may be restricted by law. Persons into whose possession this announcement comes should inform themselves about and observe any such restrictions. Persons distributing this announcement must satisfy themselves that it is lawful to do so. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdictions.
Statements included in this announcement that are not a description of historical facts constitute forward-looking statements, notwithstanding that such statements are not specifically identified. Forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are difficult to predict and outside of the control of the management of the Group. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. We have based these assumptions on information currently available to us, and if any one or more of these assumptions turn out to be incorrect, actual market results may differ from those predicted. While we do not know what impact any such differences may have on our business, if there are such differences, our future results of operations and financial condition could be materially adversely affected. You should not place undue reliance on these forward-looking statements. Forward-looking statements speak only as of the date on which such statements are made. The Group expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events.
No representation, warranty or undertaking, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information or the opinions contained herein. Neither the Group nor any of its advisors or representatives shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this press release or its contents. The information contained in this press release does not constitute investment advice.
[1] Equity contribution is backstopped via an Equity Commitment Letter from an Existing Shareholder fund with approximately €1.4 billion in uncalled / unencumbered capital.
