TalkTalk Telecom Group’s bonds are rallying on bets that the sale of one of its units may help the company pay down its debt.
(Bloomberg) — TalkTalk Telecom Group’s bonds are rallying on bets that the sale of one of its units may help the company pay down its debt.
The company has held discussions about selling its business-to-business division, called B2B Direct, and is looking for new investors in its wholesale platform, according to a person familiar with the matter, who asked not be named. TalkTalk discussed the plans with analysts during a private call this week, driving the surge in its bonds.
It’s the latest example of stressed borrowers in Europe’s high-yield bond market looking to asset disposals to pay back their debt piles. Vodafone Group Plc recently sold a stake in its Vantage Towers AG business to a consortium that includes KKR & Co. as part of its deleveraging efforts.
UK-based TalkTalk has £685 million ($895 million) worth of debt maturing in February 2025. In April, those bonds dropped below the 80 pence on the pound mark, which many investors consider as signalling distress, as bondholders fretted about refinancing. Since the earnings call on July 11, the bonds have risen by over 3 pence on the pound to about 85, according to CBBT data compiled by Bloomberg.
“Results have been well received by bondholders given the renewed focus and update on an accelerated path to try to delever through asset sales, rather than relying on an organic turnaround,” wrote analysts at New Street Research.
TalkTalk, which provides broadband access to 4 million Britons as well as landline phones, TV and mobile services, plans to sell the entirety of B2B Direct, but with a contract back to the wholesale platform, where it will remain a customer, said the person familiar with the matter.
Such asset sales are expected to grow in importance as borrowing costs remain elevated. It’s a marked reversal from the past decade, when lenders and shareholders urged firms to increase borrowing and buy other businesses to take advantage of super-cheap funding.
Like many other companies, TalkTalk is facing an increase in its debt costs when it comes to refinancing. The company originally priced its 2025 bond with a 3.875% coupon. That deal is now trading with a yield to maturity of around 14%.
At current refinancing rates, New Street Research analysts wrote that they struggled to see its debt coming down in absolute terms without disposals or a further equity injection.
TalkTalk’s ability to pass on costs is limited. Most broadband operators are pushing through price rises, but unlike some bigger rivals like BT Group Plc and Virgin Media, TalkTalk doesn’t own much infrastructure, so it has to pay wholesale costs to lease the broadband network from other operators.
In addition, unlike other operators which follow the same model, TalkTalk markets itself as the low-cost alternative, and does not bundle together high-value content like sports and drama.
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