Owners of Virgin Media O2 are exploring a range of measures to address the company’s approximately £22 billion debt, after investor worries about the telecoms group’s financial position triggered a sell-off in its bonds, according to people close to the situation.
Shareholders Telefónica and Liberty Global are reportedly considering several actions that could be taken to alleviate pressure on the balance sheet. Among the measures being weighed are cutting the group’s anticipated dividend of about £200 million for this year, trimming headcount and scaling back capital expenditure plans.
The move follows a sharp drop in secondary-market prices for VMO2 bonds as investors became more cautious about the company’s finances. The market value of roughly £1.1 billion of the group’s senior unsecured debt has tumbled, with one $925 million bond falling as low as 57 cents on the dollar on Wednesday. That same bond was trading near 78 cents on the dollar at the start of July.
Senior secured bonds, typically seen as carrying less risk than unsecured notes, have also lost ground. The price of a $1.4 billion secured note reached 76 cents on the dollar, down from 92 cents at the beginning of the year.
Executives and owners are reported to be considering the measures as responses to the investor-driven decline in bond prices. The deliberations involve trade-offs between preserving liquidity and protecting future growth plans, given that reductions in staff or capital expenditure could have operational consequences.
At this stage, the discussions are described as internal and exploratory. No final decisions have been disclosed publicly about whether the dividend will be cut, how many staff might be affected or the scale of any capex reductions. The market reaction to the company’s debt load continues to be reflected in the falling prices of both unsecured and secured bonds.
Summary
Shareholders Telefónica and Liberty Global are assessing options to reduce Virgin Media O2’s £22 billion debt amid a sell-off in the company’s bonds. Potential steps include a £200 million dividend cut, staff reductions and lower capital spending. Both senior unsecured and senior secured bonds have shown significant price declines.
Key developments and market moves
- Owners are considering cutting VMO2’s expected £200 million dividend this year.
- Potential operational measures under review include workforce reductions and lower capex.
- Secondary-market prices for VMO2 debt have fallen sharply - a $925 million unsecured bond dropped to 57 cents on the dollar from about 78 cents in early July, and a $1.4 billion secured note declined to 76 cents from 92 cents at the start of the year.