Tele Columbus
We are pleased to announce the successful restructuring of Tele Columbus AG (Tele Columbus) through an English Scheme of Arrangement sanctioned on 28 February 2024 with high levels of creditor support. The transaction closed on 19 March 2024.
Tele Columbus, founded in 1972, is a leading German fibre network operator and the country’s second-largest Hybrid Fibre Coax provider with 4.8 million homes passed and 2.3 million gigabit-enabled homes connected. The company employs approximately 1,300 employees in Germany. Tele Columbus’ main shareholder Kublai GmbH (Kublai) owns 94.8% of the shares, and 5.2% of the shares continue to be listed in free float on the Hamburg Stock Exchange. Ultimate shareholders of Kublai are Morgan Stanley Infrastructure Partners (MSIP), owning 60%, and United Internet (UI) with 40% stake.
The company experienced a gradual decline in revenues in recent years, primarily driven by users switching to internet-supported streaming services, given its TV cable segment had historically been its largest revenue contributor followed by the internet/telephony segment. Additionally, the increase in overall costs as a result of general macroeconomic trends in Europe led to EBITDA margins following a similar declining trend. As of June 2023, Tele Columbus had outstanding debt of c.€1.3 billion consisting of a €462 million term loan facility (TL), €650 million senior secured notes (SSNs), and c.€224 million of other debt predominantly consisting of lease liabilities. A general rise in base interest rates further impacted the company’s net profitability and cash flow generation ability.
To compensate for the falling revenues and to increase market penetration, during 2021, Tele Columbus announced its “Fibre Champion” strategy, per which it planned to invest c.€2 billion in expansion capex over the next 10 years (c.€3 billion in total capex). This transition to a fibre-based infrastructure was intended to improve the quality of the company’s network, particularly by providing significantly faster internet speeds. However, the lagging timing in top-line generation from its capex plan, coupled with rising costs and an increase in base rates, pushed cash flows into negative territory, thereby significantly impacting liquidity. In addition to the operational challenges, Tele Columbus faced impending debt maturities during October 2024 and May 2025 for the TL and SSNs, respectively.
Houlihan Lokey was engaged by an ad hoc group (AHG) of holders in the TL and SSNs during August 2023 to support negotiations with the company and its shareholders. The objective was to stabilize the company’s operations and provide enough liquidity for the business to pursue its business plan, which included its capex-heavy strategy.
The transaction was completed with the provision of:
- €300 million of equity commitment from the company’s shareholders (60% at closing of the transaction with the remainder to be injected within 12 months post-closing);
- Extension of maturities for the TL and SSNs until January 2029 with enhanced commercial terms, including increased interest rates (10% all in, predominantly PIK), additional security pool, reporting requirements, and financial covenants while also allowing lenders to switch between the TL and SSN;
- Ability to reduce TL and SSNs interest coupon and unlock incremental super-senior baskets depending on additional equity injections with certain capped thresholds;
- Implementation of a Double LuxCo structure within the group to further secure the debt and facilitate enforcement in the event of any realization of assets;
- A milestone plan for the operational and legal separation of the current business into a ServCo/NetCo structure to facilitate potential infrastructure financings.