Avanti Communications Group PLC Launch of Consent Solicitations and Update on Outlook

 

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 JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.

Avanti Communications Group PLC (AIM: AVN), (“Avanti” or the “Company”) today announces that, in accordance with the Company’s previously announced proposed restructuring of its indebtedness on 13 December 2017 (the “Restructuring”), it has simultaneously commenced four concurrent and distinct solicitations of consents (collectively, the “Consent Solicitations”) from the holders of its 10%/15% Senior Secured Notes due 2021 (the “2021 Notes”) and its 12%/17.5% Senior Secured Notes due 2023 (the “2023 Notes”) to certain proposed amendments and waivers, as further described below, to the indentures governing the 2021 Notes (the “2021 Indenture”) and the 2023 Notes (the “2023 Indenture”).

 

The terms and conditions of the 2021 Majority Consent Solicitation and the 2021 90% Consent Solicitation (each as defined herein) are set forth in a Consent Solicitation Statement and accompanying Letter of Consent, each dated as of the date hereof (together, the “2021 Consent Documents”). The terms and conditions of the 2023 Majority Consent Solicitation and the 2023 75% Consent Solicitation (each as defined herein) are set forth in a separate Consent Solicitation Statement and accompanying Letter of Consent, each dated as of the date hereof (together, the “2023 Consent Documents” and, together with the 2021 Consent Documents, the “Consent Documents”). Copies of the Consent Documents may be obtained from D.F. King & Co., Inc., the Information and Tabulation Agent for the Consent Solicitations, at +1 (800) 714-3311 (toll free), +1 (212) 269-5550 (collect) or by email to: avn@dfking.com.

 

As of the date hereof, holders representing approximately 80% of the outstanding 2021 Notes and 71% of the outstanding 2023 Notes have entered into a Restructuring Agreement with the Company pursuant to which they have contractually agreed, among other things, to validly deliver (and not revoke) their consents in each Consent Solicitation.

 

Subject to applicable law, each of the Consent Solicitations may be abandoned or terminated for any reason at any time, including after the applicable Expiration Time (as defined herein) and prior to the applicable Proposed Amendments (as defined herein) becoming operative, in which case any consents received will be voided and, where applicable, no applicable Consent Payment (as defined herein) will be paid.

 

2021 Majority Consent Solicitation

 

The Company is seeking consents from holders representing at least a majority (the “Majority Requisite Consents”) in aggregate principal amount of 2021 Notes (the “2021 Majority Consent Solicitation”) to, among other things:

 

·           remove from the definition of Events of Default (as defined in the 2021 Indenture) any event that occurs in connection with the implementation of the Restructuring, including (without limitation) an application under Chapter 15 of the U.S. Bankruptcy Code for recognition of an English law scheme of arrangement (the “Scheme”), that would result in an Event of Default under Section 6.01(i) or 6.01(j) of the 2021 Indenture (the “Majority Proposed Amendments”); and

 

·           irrevocably waive any Default (as defined in the 2021 Indenture) or Event of Default pursuant to Section 6.01(i) and/or 6.01(j) of the 2021 Indenture and rescind any acceleration of the 2021 Notes that may arise in connection with the implementation of the Restructuring (the “Majority Proposed Waiver”).

 

The 2021 Majority Consent Solicitation will expire at 5:00 p.m., New York City time, on 7 February 2018, unless extended or earlier terminated (such time on such date, as the same may be extended or earlier terminated, the “2021 Majority Expiration Time”).  The 2021 Majority Consent Solicitation is subject to customary conditions, including, among other things, the receipt of the Majority Requisite Consents at or prior to the 2021 Majority Expiration Time.

 

Upon receipt of the Majority Requisite Consents, the Company intends to promptly execute a supplemental indenture to the 2021 Indenture to effect the Majority Proposed Amendments, which supplemental indenture will automatically become operative on the date thereof.

 

No consent payment will be made in connection with the 2021 Majority Consent Solicitation.

 

2021 90% Consent Solicitation

 

The Company is also seeking consents from holders representing at least 90% (the “90% Requisite Consents”) in aggregate principal amount of 2021 Notes (the “2021 90% Consent Solicitation”) to:

 

  • eliminate the Maintenance of Minimum Consolidated LTM EBITDA covenant contained in Section 4.30 of the 2021 Indenture, which would require testing on the last day of each fiscal quarter commencing March 31, 2018 and ending on March 31, 2020;

 

  • permit the issuance of additional indebtedness, which indebtedness shall be capped at $30.0 million and rank junior to or pari passu with the 2021 Notes;

 

  • extend the final maturity date of the 2021 Notes from October 1, 2021 to October 1, 2022;

 

  • change the interest rate payable on the 2021 Notes from 10% cash interest or 15% PIK interest to 9% cash interest or 9% PIK interest for all remaining interest periods commencing October 1, 2017;

 

  • eliminate the margin increase payable on the 2021 Notes if the relevant Minimum Consolidated LTM EBITDA (as defined in the 2021 Indenture) threshold was not met; and

 

  • permit interest payments on the 2021 Notes for all remaining interest periods commencing October 1, 2017 (but excluding the final interest payment) to be paid as PIK interest if the Company does not have sufficient cash to satisfy the applicable interest coupon,

 

(collectively, the “90% Proposed Amendments”).

 

The 2021 90% Consent Solicitation will expire at 5:00 p.m., New York City time, on 22 February 2018, unless extended or earlier terminated (such time on such date, as the same may be extended or earlier terminated, the “2021 90% Expiration Time”).  The 2021 90% Consent Solicitation is subject to certain conditions, including, among other things, (1) the successful completion of the 2021 Majority Consent Solicitation, (2) the receipt of the 90% Requisite Consents at or prior to the 2021 90% Expiration Time and (3) the satisfaction or waiver (if applicable) of all conditions precedent to the Restructuring.

 

In the event that each of the conditions to the 2021 90% Consent Solicitation described in the 2021 Consent Documents is satisfied or waived, the Company will pay to each holder of record of the 2021 Notes as of 5:00 p.m., New York City time, on 24 January 2018 who has validly delivered (and not revoked) a consent in respect of the 90% Proposed Amendments at or prior to 5:00 p.m., New York City time, on 7 February 2018, $2.50 in cash for each $1,000 principal amount of 2021 Notes (the “2021 Consent Payment”).

 

If the 90% Requisite Consents are received at or prior to the 2021 90% Expiration Time, the Company intends to promptly execute an additional supplemental indenture to the 2021 Indenture to effect the 90% Proposed Amendments.  The 90% Proposed Amendments will not become operative unless and until all conditions to the 2021 90% Consent Solicitation have been satisfied or waived, including all conditions precedent to the Restructuring, and the 2021 Consent Payment has been made.

 

If the 90% Requisite Consents are not received at or prior to the 90% Expiration Time, the Company intends to seek to implement the 90% Proposed Amendments pursuant to the Scheme and no 2021 Consent Payment will be made.

 

2023 Majority Consent Solicitation

 

The Company is also seeking the Majority Requisite Consents from holders of its 2023 Notes (the “2023 Majority Consent Solicitation”) to amendments and waivers to the 2023 Indenture that are analogous to the Majority Proposed Amendments and the Majority Proposed Waiver.

 

The 2023 Majority Consent Solicitation will expire at 5:00 p.m., New York City time, on 7 February 2018, unless extended or earlier terminated (such time on such date, as the same may be extended or earlier terminated, the “2023 Majority Expiration Time”). The 2023 Majority Consent Solicitation is subject to customary conditions, including, among other things, the receipt of the Majority Requisite Consents at or prior to the 2023 Majority Expiration Time.

 

Upon receipt of the Majority Requisite Consents, the Company intends to promptly execute a supplemental indenture to the 2023 Indenture to effect the Majority Proposed Amendments, which supplemental indenture will automatically become operative on the date thereof.

 

No consent payment will be made in connection with the 2023 Majority Consent Solicitation.

 

2023 75% Consent Solicitation

 

The Company is also seeking consents from holders representing at least 75% (the “75% Requisite Consents”) in aggregate principal amount of its 2023 Notes (the “2023 75% Consent Solicitation”) to amend the submission to jurisdiction provision of the 2023 Indenture to require that, from and after the date of effectiveness of the amendment, each party to the 2023 Indenture irrevocably submits to the jurisdiction of the Court of England and Wales until the Restructuring Agreement is either terminated or is no longer in effect (the “Jurisdiction Proposed Amendments”).

 

The 2023 75% Consent Solicitation will expire at 5:00 p.m., New York City time, on 22 February 2018, unless extended or earlier terminated (such time on such date, as the same may be extended or earlier terminated, the “2023 75% Expiration Time”).  The 2023 75% Consent Solicitation is subject to certain conditions, including, among other things, (1) the successful completion of the 2023 Majority Consent Solicitation and (2) the receipt of the 75% Requisite Consents at or prior to the 2023 75% Expiration Time.

 

In the event that each of the conditions to the 2023 75% Consent Solicitation described in the 2023 Consent Documents is satisfied or waived, the Company will pay to each holder of record of the 2023 Notes as of 5:00 p.m., New York City time, on 24 January 2018 who has validly delivered (and not revoked) a consent in respect of the Jurisdiction Proposed Amendments at or prior to 5:00 p.m., New York City time, on 7 February 2018, $0.05 in cash for each $1,000 principal amount of 2023 Notes (the “2023 Consent Payment”).

 

If the 75% Requisite Consents are received at or prior to the 2023 75% Expiration Time, the Company intends to promptly execute an additional supplemental indenture to the 2023 Indenture to effect the Jurisdiction Proposed Amendments.  The Jurisdiction Proposed Amendments will not become operative unless and until all conditions to the 2023 75% Consent Solicitation have been satisfied or waived and the 2023 Consent Payment has been made.

 

Next Steps

 

As announced previously, it is expected that a circular to the Company’s shareholders containing, amongst other things, further details of the proposed debt for equity swap, the Consent Solicitations and the notice of general meeting will be published in Q1 2018.

 

Update on Outlook

 

The Company has been advised by Orbital ATK Inc. (“Orbital”), the manufacturer of HYLAS 4, to expect delivery of HYLAS 4 in early February 2018. Arianespace has confirmed a launch date for HYLAS 4 of March 16, 2018. The Company expects services to commence in July 2018. As at 30 June 2017, the Company had incurred approximately $237.4 million and expects to incur an additional $121.8 million in connection with the construction, launch and insurance of HYLAS 4.

HYLAS 3 continues to experience delays and the European Space Agency has now advised Avanti not to expect a launch until the first three months of 2019. The Company is currently exploring the best options for the exploitation of HYLAS 3. As at 30 June 2017, the Company had incurred approximately $49.5 million and expects to incur an additional $37.5 million in connection with the construction and launch of HYLAS 3.

The directors forecast that revenue for the current financial year will not be less than $50 million. In addition there is a large infrequently recurring transaction in the pipeline that if it closes, would add a further $40 million to Group revenue with $18 million of associated costs in the current year. With effect from the end of the current financial year the Company expects substantial growth in revenue driven off the introduction of HYLAS 4 to the fleet opening up new markets in sub-Saharan Africa.

Excluding the costs associated with the potential large transaction referred to above, underlying costs remain in line with prior guidance at approximately $75 million per annum. In the following two years underlying costs are expected to grow at c. 5% per annum subject to exchange rates and the mix of bandwidth revenues compared to kit and project revenues.

 

The Company anticipates that utilization of HYLAS 4 will be 20-25% by the end of the fiscal year ending 30 June 2020, based on current operating assumptions.

 

Capital expenditure of $117 million expected for the fiscal year ending 30 June 2018 primarily relates to the launch of HYLAS 4. This represents an increase from the $92 million capital expenditure expected for the fiscal year ending 30 June 2018 that was reported in the Company’s update on outlook on 20 December 2016. This increase is due to the phasing of the expenditure with less spent in the fiscal year ended 30 June 2017 than was forecast at that time. Of the $117 million expected, $14.8 million was incurred in the three months ended 30 September 2017. The balance of $102.2 million can be broken down as follows:

 

  • $40.0 million due to Orbital, to be paid at the earlier of completion of in-orbit testing or 3 months post-launch;

 

  • $21.3 million, which was paid to Arianespace in December 2017; and

 

  • The remaining capital expenditure split between launch insurance and the ground infrastructure.

 

Of the $19 million of capital expenditure expected for the fiscal year ending 30 June 2019 (previously $32 million), the majority relates to the ground earth station in Senegal.

 

The Company’s working capital position has stabilized following the provisions made in the fiscal year ended 30 June 2017. The main variable remains the ongoing arbitration for the recovery of the debt due from the Ministry of Defense of the Government of Indonesia, as discussed in further detail in the Company’s financial statements for the year ended 30 June 2017. The Company is confident that it will recover the full outstanding amount.

 

The Company is forecasting a modest increase in working capital through the fiscal year ending 30 June 2019 as the Company sells capacity into new geographies and markets served by HYLAS 4.

 

The Company does not expect to pay corporation tax in the medium term due to more than $300 million of gross losses accumulated in the fiscal year ended 30 June 2017, mainly related to start-up costs, capitalized interest and capital allowances.

 

As of 31 December 2017, the Company had cash and cash equivalents of approximately $68.0 million.

 

The person responsible for arranging the release of this announcement on behalf of the Company is Patrick Willcocks, Company Secretary and General Counsel.

 

 

Enquiries

 

AvantiNigel Fox, Patrick Willcocks

Tel: +44 20 7749 1600

Cenkos Securities (Nomad)Max Hartley, Nicholas Wells

Tel: +44 207 397 8900

 

Important Notices

 

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 Consent Solicitations. 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 Consent Solicitation are contained in the relevant Statement and Letter of Consent and related documents. Questions concerning the Consent Solicitations should be directed to D.F. King & Co., Inc., the Information and Tabulation Agent, at +1 (800) 714-3311 (toll free), +1 (212) 269-5550 (collect) or by email to: avn@dfking.com.

 

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.