Debt-Strapped NTL May Sell Stake


Burdened with substantial interest payments on debt it accumulated during a period of rapid growth, NTL Inc. — a New York-based provider of telephone, high-speed data and cable-television service primarily in the United Kingdom — could be looking to sell off a stake to pay its bills.

NTL, which has about 5 million U.K. cable subscribers, is burdened with about $1 billion in annual debt payments. Those outlays are expected to rise to $1.6 billion in 2004, according to analysts.

Without substantial revenue and cash-flow improvement, NTL may have to sell equity to survive. According to several published reports, NTL's banks are pressuring president Barclay Knapp to find an equity partner for the company — most likely to buy France Telecom's 18 percent interest. Possible buyers include Liberty Media Corp. and AOL Time Warner Inc., both of which have growing interests in Europe.

Those same reports claim that NTL's bankers are calling for the ouster of Knapp and NTL chairman George Blumenthal. NTL officials did not return phone calls seeking comment.

At the heart of the controversy: NTL's substantial debt load — about $17 billion — and fears that it won't be able to make interest payments. Top that off with a declining stock price, and investors are beginning to panic.

NTL's stock has plunged from $102.60 per share on Jan. 24, 2000 to 40 cents each on Jan. 24, 2002. Along the way, its market capitalization has dropped from $28.4 billion to $110.6 million in two years.

The company has been struggling for months to keep its costs down. It laid off about 8,800 workers last year and has put its transmission-tower business on the block. But negotiations to sell the tower business hit a snag late last year, when NTL and prospective buyer France Telecom couldn't agree on a sale price.

The sale of the tower business was expected to fetch about $2 billion, which would have been used to reduce debt.

According to a report in the
Financial Times
last week, NTL may be in danger of defaulting on some of its bank covenants as soon as April.

Those covenants are tied to certain cash-flow growth targets, the FT
said. If NTL falls short in the first quarter, its banks could force it to repay loans.

Adding to the uncertainty is NTL's silence over the past few weeks. Although the company has said in the past that it would hit its financial targets for 2001, it has yet to issue guidance for 2002. It had told investors it would do so shortly after the beginning of the year.

Janco Partners cable analyst Matt Harrigan said the delays in 2002 guidance have increased the pressure on NTL stock. But much of the criticism directed at the company is unfounded, he said.

"With the stock price where it is, they have to be looking at alternatives," Harrigan said. "But I think they have some window to work things out in an orderly way.

"There are reports that there may be covenant defaults in Q2, but I don't think the bank debt is that impaired, if it's impaired at all, and the debt covenants on the high-yield issues I think are fairly loose."

NTL is likely to restructure its debt, said Harrigan, which could give it some breathing room. With interest payment pressure out of the way, he added, NTL may be able to engineer a debt-for-equity swap.

"There's nothing the matter with NTL's assets," Harrigan said. "They've got good assets, there's just simply too much debt."

It's unlikely that NTL would miss its first-quarter targets, he said, since it has stressed for months that it would meet or exceed its fourth-quarter forecast.

"It's a very perplexing situation," Harrigan said. "Unless the [2002] guidance is awful, maybe there's a funding gap, but I don't think it's that large for a company this size. They claim they are fully funded [through 2003] by 5 million pounds ($7.1 million), which is clearly no margin for error."

It is possible that cash-flow guidance this year could be lowered from 925 million pounds ($1.3 billion) to 900 million pounds ($1.28 billion), but that capital expenditures could be reduced by some 200 million pounds ($284.8 million), Harrigan added.

"If there is a funding gap, it feels to me that it's significantly less than 1 billion pounds ($1.4 billion)," Harrigan said. "For a company of this size, it looks like you would be able to remedy that. But in this environment, this leverage is not going to be tolerated."