In 2007, Virgin Media had a large refinancing project ahead of it. As Rick Martin, Director of Investor Relations and Treasury at Virgin Media, explains, “As of Q1 2007, we faced £4.8 billion of debt due before the end of 2012, with a weighted average maturity (WAM) of 4.4 years and weighted average cost of debt (WACD) of 7.8%. Our net leverage was 4.7 times EBITDA, and 2007-09 bank amortisation alone was 5.3 times 2007 free cash flow.”
As announced on 22nd April 2010, Virgin Media has now completely turned around this situation after three years of considerable effort. Across this period, the company issued $1 billion of convertible notes; £1.7 billion of senior unsecured notes and £1.5 billion of senior secured notes. Virgin Media now has only £325m due before 2013, with no single payment over £200m due in any year until 2015. As a result, WAM is now up to 6.8 years, and WACD has reduced to 7.5%.
The company has fundamentally changed the capital structure of its business, providing greater flexibility and scope for the use of any surplus future cash flow. Virgin Media has been rewarded with a massive drop in their CDS’s as the success of the refinancing efforts became clear, and improvements to their credit ratings.
This has flowed through to their share price as well, which was the third-best performing stock on NASDAQ in 2009 and has rallied from less than $4 in Q4 2008 to recent levels of circa $16. Virgin Media has done this in conjunction with their banking partners, including Deutsche Bank as agent, and the company’s lawyers, Fried Frank, who have likewise been cited for their excellent work.
“This is the culmination of three years of very hard work for many at the company, not just in all areas of finance, but also for colleagues in legal, and operations as well.”
This project has been accomplished during the most turbulent period for the capital markets since the 1930s. In addition to the financings referenced above, the company also executed a material amendment in October 2008, launched just after the government rescue of some of the UK banks. “Virgin Media was opportunistic and nimble, tapping into all levels of the capital markets from bank debt, to quasi-equity, accessing the optimal ‘slice’ of the capital markets at every turn,” says Martin. Highlighted by the re-opening of the euro and sterling high-yield debt markets, and the largest sterling high-yield bond ever, Martin is, understandably, enormously proud of his team.
“This is the culmination of three years of very hard work for many at the company, not just in all areas of Finance, but also for colleagues in Legal, and Operations as well,” notes Martin. “That said, the team have enjoyed a tremendous sense of accomplishment and can point to a very tangible contribution to Virgin Media’s success – it’s a great feeling, and we will look to do more of the same going forward.”
Eamonn O’Hare, Virgin Media’s CFO said, “Our focus has been to steer the business into a position where we have a long-term, fit-for-purpose capital structure that supports our ambitions. The completion of this process is a major achievement, particularly in light of the market conditions over much of the last three years. In order to overcome those issues in the credit markets, we have been innovative and proactive in our efforts to substantially reduce our refinancing risk.
Looking ahead, we are a highly cash generative business. Through our combined efforts to increase the efficiency of the organisation, we anticipate continuing the good progress we have made,” says O’Hare. “The sustained financial stability of our business underpins all of our commercial efforts and will contribute to our continued leadership position in the super-fast broadband and next generation TV markets.”
