Avanti Communications Group plc – Update on Strategic Review
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This announcement contains Inside Information
Avanti Communications Group plc
Update on Strategic Review
- Announcement of two-phase funding strategy:
- To address the short term liquidity need, launch of a consent solicitation process to pay the $32.25m October 2016 coupon by issuing additional senior secured notes due 2019 (the “Senior Secured Notes”1) to which bondholders owning approximately 60% of Senior Secured Notes have provided support
- Commenced work on a long term funding solution which will be the subject of a further update in due course
- Update on Strategic Review and updated outlook
On 11 July 2016, the Board of Directors (the “Board”) of Avanti Communications Group plc (“Avanti” or the “Company”) announced the undertaking of a strategic review (the “Strategic Review”) to consider all financial and strategic options. As part of this exercise, Avanti has conducted an in-depth review of its business plan, financial position and strategic options, including various routes to strengthen the Company’s balance sheet.
Additionally, Avanti recently entered into constructive discussions with certain of its largest bondholders representing approximately 60% of the Company’s Senior Secured Notes (the “Investor Group”), with the dual goals of addressing near-term liquidity needs and developing a stable long term platform for the Company. The Company has, as a result, today initiated the first phase of a two-phase funding strategy. On 11 July 2016, the Company also announced a “formal sale process” in accordance with Note 2 on Rule 2.6 of The City Code on Takeovers and Mergers (the “Code”) which is running in parallel with the financing process.
Avanti has engaged in discussions with a number of potential acquirers or investors around a strategic transaction and discussions are on-going with interested parties. Upon the completion of due diligence by interested parties, the Board intends to request best and final indicative offers for a potential acquisition or any strategic investment in the Company. There is, however, no certainty that a satisfactory offer or other strategic transaction will be forthcoming.
1 Senior Secured Notes include the 10.0% senior secured notes due 2019 of $370.0 million, $150.0 million and $125.0 million issued by the Company on 1 October 2013, 17 June 2014, and 21 August 2015 respectively.
In order to afford the Company the necessary time to complete the Strategic Review process to the point where prospective offers for an acquisition of Avanti are formally submitted or potential financing options are ready to be implemented, the Company is launching a consent solicitation process (the “Consent Solicitation”), which already has the support of the Investor Group. This seeks to amend the indenture governing its Senior Secured Notes (the “Indenture”) to facilitate paying the coupon due on the Senior Secured Notes on 1 October 2016 of $32.25 million (the “October Coupon”) with additional Senior Secured Notes on the same terms as the existing Senior Secured Notes (“Additional Notes”) in lieu of cash. In order to further support the Strategic Review process, the Company has entered into binding agreements with certain suppliers to defer approximately $39 million of capital expenditure payments relating to HYLAS 4 to Q3 FY2017, but the launch schedule is unaffected by the deferral.
Launch of consent solicitation and support of the Investor Group
Avanti is soliciting the consent of the holders of its Senior Secured Notes to issue the Additional Notes in lieu of cash to pay the October Coupon (the “PIK Proposed Amendment”), as described in the Consent Solicitation Statement dated 16 September 2016 prepared by the Company (the “Consent Solicitation Statement”). For every $1,000 in principal amount of Senior Secured Notes for which consents are delivered by holders, the Company will issue $50 of Additional Notes. In addition, holders who validly deliver their consent prior to 5:00 p.m., New York time, on 29 September 2016 (the “Early Consent Time”), and who do not validly revoke their consent prior to the revocation deadline (as described in the Consent Solicitation Statement) will be eligible to receive additional consent payments consisting of (i) $20 per $1,000 principal amount of Senior Secured Notes (the “PIKConsent Payment”) (which will be paid in the form of Additional Notes), and $1.50 in cash per $1,000 principal amount of Senior Secured Notes (the “Cash Consent Payment”) (together referred to as the “Consent Payment”).
The Company is also soliciting the consent of holders of its Senior Secured Notes to permit the Company to furnish its annual report for the fiscal year ended 30 June 2016 and its quarterly earnings release for the fiscal quarter ended 30 September 2016 to the Senior Secured Notes trustee by no later than 31 December 2016 (the “Reports Proposed Amendment” and, together with the PIK Proposed Amendment, the “Proposed Amendments”). Holders delivering consents will be deemed to consent to the Proposed Amendments in the entirety, and the delivery of a consent purporting to consent to only the Reports Proposed Amendment or the PIK Proposed Amendment will not be valid.
If holders of at least 90% (in aggregate) principal amount of the Senior Secured Notes (the “90% Consent Threshold”) validly deliver (and do not revoke) their consent to the Proposed Amendments prior to the Early Consent Time, the full amount of the October Coupon, together with the PIK Consent Payment, will be paid-in-kind via the issuance of up to $45.15 million in principal amount of Additional Notes (assuming 100% participation). If the 90% Consent Threshold is not met, the October Coupon will be paid in the form of Additional Notes only to those holders that delivered consents prior to the Expiration Time, while non-consenting holders will continue to be paid the October Coupon in cash using cash on the Company’s balance sheet.
If the Company fails to meet the 90% Consent Threshold, then it could elect, with the consent of the Investor Group, to terminate the portion of the Consent Solicitation related to the PIK Proposed Amendment and instead enter into a forbearance agreement with consenting holders. Under the forbearance, holders would, among other things, agree not to accelerate or take enforcement action on the basis of an event of default under the Indenture as a result of any non-payment of the October Coupon. A forbearance fee in an amount equal to $2.50 per $1,000 principal amount of Senior Secured Notes would then be payable to the forbearing bondholders.
In addition, the Reports Proposed Amendment will become effective (but not operative) as to all holders of the Senior Secured Notes at such time that the Company enters into a supplemental indenture with the trustee and the other parties to the indenture governing the Senior Secured Notes with respect to the PIK Proposed Amendment. The Proposed Amendments will only become operative on the date the Consent Payment is made (the “Payment Date”), which is expected to be on 1 October 2016 if the 90% Consent Threshold is reached by the Early Consent Time or, otherwise, promptly following the Expiration Time.
Upon delivery of a consent, the Senior Secured Notes subject to such consent will not be transferable prior to the Payment Date, unless such consent is validly revoked. The Consent Solicitation will expire at 5:00 p.m., New York time, on 14 October 2016 (such date and time, as may be extended, amended or earlier terminated by the Company, the “Expiration Time”).
As of the date of this announcement, the Investor Group has contractually agreed to consent to the Proposed Amendments, which allows the Company to meet a 50% majority consent threshold.
Only holders who have provided a confirmation to the Company that (A) such holder and any beneficial owners of Senior Secured Notes such holder represents are Qualified Institutional Buyers (“QIBs” as defined in the U.S. Securities Act of 1933, as amended (the “Securities Act”)) or (B) such holder is located outside the United States (as defined in Regulation S under the Securities Act) are authorised to receive or review the Consent Solicitation Statement or to participate in the Consent Solicitation made thereby. Holders are advised to read carefully the Consent Solicitation Statement for full details of the terms of, and information on the procedures for participating in, the Consent Solicitation. Copies of the Consent Solicitation Statement are available to eligible holders from the Information and Tabulation Agent, the contact details of which are provided below.
As part of the Strategic Review, Avanti has updated its outlook on future revenue, capex and working capital.
As previously stated in the trading update on 7 July 2016, revenue is expected to be approximately $83 million2 and EBITDA is expected to be approximately $8.0 million for FY2016, based on contract wins in the fourth quarter being over $70 million. Revenue is now expected to grow at a rate of 35-40% p.a. over the next 2-3 years. In Q4 FY2016, utilisation of the existing fleet was in the 35% to 40% range2, including the full pro-forma impact of significant new customer wins in the period, demonstrating strong momentum.
Capital expenditure was approximately $96 million2 in FY2016 and is expected to be approximately $110 million, $80 million and $25 million in FY2017, FY2018 and FY2019 respectively. This guidance assumes that the Company makes savings in certain capex programmes which are under the Company’s control as previously announced.
Avanti’s working capital increased by approximately $42 million2 in FY2016 following larger clients demanding longer credit terms. The Company expects to collect on its outstanding working capital balances, and significant inflows have already occurred in Q1 FY2017 while the on-going receivable balance will continue to grow in-line with revenues.
Pursuant to Rule 28.1 (c) of the Code, the directors of Avanti confirm that the guidance given on 7 July 2016 remains valid and has been properly compiled on the basis (i) of the assumption stated and (ii) that the basis of accounting used is consistent with the company’s accounting policies.
As of 9 September 2016, the Company had cash and cash equivalents of approximately $56 million.
The Board believes that the support of the Investor Group in the Consent Solicitation process represents a significant step towards addressing the Company’s immediate financing requirements. The Company will continue to finalise a longer term refinancing solution with the intention that it is structured to maximise shareholder value and to provide a stable, long term platform for the Company. The Company will also continue to explore an M&A transaction and will update shareholders in due course.
2 Unaudited FY2016 results.
Tel: +44 207 749 6703
|Jefferies (Joint Financial Adviser)||Dominic Lester, Jonathan Wilcox, Tariq Hussain|
Tel: +44 20 7029 8000
|Greenhill (Joint Financial Adviser)||Gareth Davies, Carlo Bosco|
Tel: +44 20 7198 7400
|Cenkos Securities (Nomad)||Max Hartley, Nicholas Wells|
Tel: +44 207 397 8900
|Montfort Communications (PR)||Nick Miles, James Olley|
Tel: +44 203 770 7909
|Information and Tabulation Agent||D.F. King & Co., Inc.|
48 Wall Street, 22nd Floor
New York, New York 10005
Toll-Free: +1 888 644 5854
Collect: +1 212 269 5550
|PJT Partners (UK) LLP (financial adviser to the Investor Group)||Tom Campbell, Romain Lanier, Boris Docekal|
Tel: +44 20 3650 1000
Jefferies International Limited (“Jefferies”) and Greenhill & Co. International LLP (“Greenhill”), which are both authorised and regulated in the United Kingdom by the Financial Conduct Authority, are acting as joint financial advisers to the Company and for no one else in connection with the matters referred to in this announcement and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Jefferies and Greenhill or for affording advice in relation to any other matters referred to in this announcement.
These materials 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, Avanti’s results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which Avanti operates. 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 of operations, financial condition, liquidity, prospects, growth, strategies and the development of the industry in which Avanti operates may differ materially from those described in or suggested by the forward looking statements contained in these materials.
In addition, even if Avanti’s results of operations, financial condition, liquidity, prospects, growth, strategies and the development of the industry in which Avanti operates are consistent with the forward-looking statements contained in these materials, 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, as well as many other risks specifically related to Avanti and its operations, including those discussed in these materials.
These materials are 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 Securities Act. Any securities mentioned herein have not been and will not be registered under the Securities Act, and no public offering will be made in the United States.
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 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.
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.
Disclosure requirements of the Takeover Code
Under Rule 8.3(a) of the Code, any person who is interested in 1% or more of any class of relevant securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any securities exchange offeror is first identified. An Opening Position Disclosure must contain details of the person’s interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 p.m. (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 p.m. (London time) on the 10th business day following the announcement in which any securities exchange offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.
Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1% or more of any class of relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person’s interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror, save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 p.m. (London time) on the business day following the date of the relevant dealing.
If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they will be deemed to be a single person for the purpose of Rule 8.3.
Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).
Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel’s website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. You should contact the Panel’s Market Surveillance Unit on +44 (0)20 7638 0129 if you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure.
16 September 2016