NTL's miracle escape from liquidation

CEO Barclay Knapp saw NTL default on an Enron-beating debt mountain of £7.3 billion on Tuesday 16 April, but unlike his energy sector counterparts, managed to haul the UK's biggest cable operator back from the brink of liquidation.

In a life-saving deal, NTL bondholders were persuaded to accept a debt-for-equity swap that essentially gives bondholders ownership of the company in exchange for reducing interest payments on the massive £11.8 billion bank and bond debts.

By accepting the deal, bondholders have reduced NTL's interest payments by about £590 million a year. The company will now be able to continue operations as usual, although creditors are still owed around £4.1 billion.

NTL, which is listed on the US stock market, and its non-operating subsidiaries will now file under America's Chapter 11 bankruptcy laws.

The once index-topping company went on a buying spree in the mid-1990s, at the height of the dot.com expansion, purchasing stakes in rival companies which totalled at least £14.2 billion by 2000. The biggest acquisition was Cable & Wireless Plc in July 1999 for over £8 billion.

However, market analysts believe that if NTL can manage through this difficult period the core business remains an attractive and viable concern. NTL has 1.25 million UK subscribers and offers customers digital TV, phone and Internet access through its cable network. It ranks third behind BSkyB and ITVDigital in the UK in terms of digital TV subscriber numbers.

After the bail out deal, an optimistic Barclay Knapp seemed to believe that, having won over the bondholders, they wouldn’t immediately sack him for being responsible for the company's financial straits – as they are now empowered to do.

"We're totally focused on getting a good job done, and we believe that having done a good job there will be opportunities for all of us," said Mr Knapp.

He continued: "The agreement we are announcing today is a major step towards our goal of ensuring the successful completion of the recapitalisation we announced in January. We are working with all parties in our capital structure, including the company's bank lenders, to finalise these arrangements. The US-based chapter 11 process will allow NTL to reorganise and re-emerge stronger and healthier without affecting operations."

NTL's current woes are the latest in a line of serious problems facing the broadcast sector. The industry's pay TV operators have been particularly hard hit with giant corporations like Kirch in Germany and ITV Digital in Britain entering administration owing hundreds of millions of pounds.

NTL's debt default of £7.3 billion slightly shades the £6.8 billion record debt default that heralded the destruction of Enron. Investors who joined NTL at the height of its success in 2001 will have seen the value of their shares fall from $38 to 7c.

(GMcG)