Avanti Communications (LON:AVN) has announced a proposed financial restructuring that should clear the way to resume more normal operations. FY17 results are still to be released, and are expected in January 2018. Until we have a more current financial base to work from, we are withdrawing our forecasts. That is not to say that existing shareholders may not finally benefit from the restructuring. In our opinion, greater risk lies with the proposals not proceeding. The debt for equity swap, interest savings and discount being assumed by the bondholders should provide a solid foundation for Avanti to execute its strategy, with an improved prospect for equity holders.
Debt reduction removes operational barriers
If accepted, the proposed financial restructuring has two main elements, one for each of the main bond classes. The primary element is the issue of around 2bn new 1p shares, compared to the current 162m, to retire the entire $557m 2023 Note issue. The note holders thus crystallise a significant write-down against the nominal value of their holdings, with the bonds trading at a substantial discount (c 75%) in the market due to risk and uncertainty over the future. The risk reduction this implies facilitates the second element of the restructuring relating to the 2021 Notes, the ‘90% Proposed Amendments’. The term will be extended by a year and the rates for both cash and PIK interest will fall to just 9%. The revised model transforms the capital allocation outlook, retaining annual interest savings from the debt elimination and coupon reduction, which should total around $92m for the benefit of the company and its equity holders, with improved security for the 2021 bonds.
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