Financial Restructuring. On September 30, 2002 we announced that we had reached a non-binding preliminary agreement relating to a restructuring of our balance sheet with an ad hoc committee of our bondholders (the `Bondholder Committee'). That agreement provided for the cancellation of all outstanding notes and debentures (the `Notes') (approximately (pound)3.5 billion) and certain other unsecured foreign exchange hedge contracts (the `Hedge Contracts') (approximately (pound)33 million) in exchange for new ordinary shares (the `New Shares') representing 97% of our issued share capital immediately after the Financial Restructuring. Under that agreement our current ordinary shareholders would have received the remaining 3% of our issued ordinary share capital. We also announced on September 30, 2002 that we were deferring payment of interest under certain of our Notes and the amounts due as a result of the settlement of the Hedge Contracts. Such non-payment continues and has resulted in defaults under our Existing Facility and a number of other financing arrangements. Based on one such default, in respect of non-payment of approximately (pound)10.5 million to a Hedge Contract counter-party, that -------------------------------------------------------------------------------- TELEWEST COMMUNICATIONS PLC US GAAP UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- NOTES TO THE UNAUDITED CONDENDSED CONSOLIDATED FINANCIAL STATEMENTS counter-party has filed a petition with a UK Court to wind us up. We intend to deal with this claim as part of the overall restructuring of our unsecured debt obligations and do not believe that the legal action will significantly delay or impede the Financial Restructuring process. We expect to meet our obligations to our suppliers and trade creditors and this legal action is expected to have no impact on customer service. On January 15, 2003, we announced that we had reached a non-binding agreement with respect to the terms of amended and restated credit facilities with both the steering committee of our Senior Lenders and the Bondholder Committee. In addition, the terms of these facilities had received credit committee approval, subject to documentation and certain other issues, from all of our Senior Lenders, save for those banks which are also creditors by virtue of the unsecured Hedge Contracts with which we will deal in the overall Financial Restructuring. These amended facilities will replace the Existing Facility and are, as noted above, conditional on various matters, including the satisfactory finalization of arrangements for dealing with foreign exchange creditors and the completion of our balance sheet restructuring. These amended credit facilities will provide us with substantial liquidity, which is expected to be sufficient to see us through to cash flow positive after completion of the Financial Restructuring. On March 14, 2003, we notified the Senior Lenders that, as a result of two non-recurring items, the VAT decision (see our 20-F, Item 5. Operating and Financial Review and Prospects -- Operating Results -- Results of Operations --Years ended December 31, 2001 and 2002 -- Revenue) and legal and professional costs associated with the Financial Restructuring, and their impact on our net operating cash flow, we would breach certain financial covenants under our bank facility in respect of the quarter ended December 31, 2002. On May 16, 2003, we further notified the Senior Lenders that we were in breach of the financial covenants for the quarter ended March 31, 2003 due to continuing fees paid in connection with the Financial Restructuring and the tightening of covenants. On June 9, 2003, we announced that we had been notified by the Bondholder Committee that, in order to obtain the support of certain of our bondholders, the Bondholder Committee had requested certain changes to the economic and other terms of the preliminary non-binding agreement relating to our Financial Restructuring with the Bondholder Committee, as announced on September 30, 2002, On June 17, 2003, representatives of the Bondholder Committee provided us with a new proposal for the terms of the Financial Restructuring. On July 28, 2003, we announced that we expected the final terms of the Financial Restructuring to provide that ordinary shareholders will receive 1.5% of the issued share capital immediately following the Financial Restructuring. We continue to engage in negotiations with our bondholders, Senior Lenders and certain other major stakeholders and the directors believe that a final agreement will be achieved in due course.
Appears in 1 contract
Samples: Telewest Communications PLC /New/
Financial Restructuring. On September 30, 2002 we announced that we had reached a non-binding preliminary agreement relating to a restructuring of our balance sheet with an ad hoc committee of our bondholders (the `Bondholder Committee'). That agreement provided for the cancellation of all outstanding notes and debentures (the `Notes') (approximately (pound)3.5 billion) and certain other unsecured foreign exchange hedge contracts (the `Hedge Contracts') (approximately (pound)33 million) in exchange for new ordinary shares (the `New Shares') representing 97% of our issued share capital immediately after the Financial Restructuring. Under that agreement our current ordinary shareholders would have received the remaining 3% of our issued ordinary share capital. We also announced on September 30, 2002 that we were deferring payment of interest under certain of our Notes and the amounts due as a result of the settlement of the Hedge Contracts. Such non-payment continues and has resulted in defaults under our Existing Facility and a number of other financing arrangements. Based on one such default, in respect of non-payment of approximately (pound)10.5 million to a Hedge Contract counter-party, that -------------------------------------------------------------------------------- TELEWEST COMMUNICATIONS PLC US GAAP UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- NOTES TO THE UNAUDITED CONDENDSED CONSOLIDATED FINANCIAL STATEMENTS counter-party has filed a petition with a UK Court to wind us up. We intend to deal with this claim as part of the overall restructuring of our unsecured debt obligations and do not believe that the legal action will significantly delay or impede the Financial Restructuring process. We expect to meet our obligations to our suppliers and trade creditors and this legal action is expected to have no impact on customer service. On January 15, 2003, we announced that we had reached a non-binding agreement with respect to the terms of amended and restated credit facilities with both the steering committee of our the Senior Lenders and the Bondholder Committee. In addition, the terms of these facilities had received credit committee approval, subject to documentation and certain other issues, from all of our Senior Lenders, save for those banks which are also creditors by virtue of the unsecured Hedge Contracts with which we will deal in the overall Financial Restructuring. These amended facilities will replace the Existing Facility and are, as noted above, conditional on various matters, including the satisfactory finalization of arrangements for dealing with foreign exchange creditors and the completion of our balance sheet restructuring. These amended credit facilities will provide us with substantial liquidity, which is expected to be sufficient to see us through to cash flow positive after completion of the Financial Restructuring. On March 14, 2003, we notified the Senior Lenders that, as a result of two non-recurring items, the VAT decision (see our the 20-F, Item 5. Operating and Financial Review and Prospects -- Operating Results -- Results of Operations --Years ended December 31, 2001 and 2002 -- Revenue) and legal and professional costs associated with the Financial Restructuring, and their impact on our net operating cash flow, we would breach certain financial covenants under our bank facility in respect of the quarter ended December 31, 2002. On May 16, 2003 and August 7, 2003, we further notified the Senior Lenders that we were in breach of the financial covenants for the quarter three-month periods ended March 31, 2003 (two covenants breached) and June 30, 2003 (one covenant breached) due to continuing fees paid in connection with the Financial Restructuring and the tightening of covenants. On June 9, 2003, we announced that we had been notified by the Bondholder Committee that, in order to obtain the support of certain of our bondholders, the Bondholder Committee had requested certain changes to the economic and other terms of the preliminary non-binding agreement relating to our Financial Restructuring with the Bondholder Committee, as announced on September 30, 2002, On June 17, 2003, representatives of the Bondholder Committee provided us with a new proposal for the terms of the Financial Restructuring. On July 28, 2003, we announced that we expected the final terms of the Financial Restructuring to provide that ordinary shareholders will receive 1.5% of the issued share capital immediately following the Financial Restructuring. We continue to engage in negotiations with our bondholders, Senior Lenders and certain other major stakeholders and the directors believe that a final agreement will be achieved in due course.. -------------------------------------------------------------------------------- TELEWEST COMMUNICATIONS PLC US GAAP ANALYSIS OF FINANCIAL CONDITION AND RESULTS -------------------------------------------------------------------------------- QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK MARKET RISK The principal market risks to which we were exposed during the six-month period ended June 30, 2003 were: o interest rate changes on variable-rate, long-term bank debt; and o foreign exchange rate changes, generating translation and transaction gains and losses on our US dollar-denominated debt instruments. From time to time we may use derivative financial instruments solely to reduce our exposure to these market risks and we do not enter into these instruments for trading or speculative purposes. Notwithstanding that we intend to cancel all of our outstanding bonds upon completion of the Financial Restructuring, until and unless that restructuring occurs, we will be exposed to foreign exchange fluctuations in respect of the principal and interest on bonds no longer hedged. We have also increased our exposure to variable interest rates, as we have not renewed a significant number of the hedges that have expired in connection with the Existing Facility. INTEREST RATE RISK Our outstanding long-term bank debt is denominated in pounds sterling and bears interest at variable rates. We seek to reduce our exposure to adverse interest rate fluctuations on borrowings under current senior bank facilities principally through interest rate swaps. Our interest rate swaps provide for payments by us at a fixed rate of interest (ranging from 5.475% to 7.355%) and the receipt of payments based on a variable rate of interest. The swaps have maturities ranging from December 31, 2003 to March 31, 2005. The aggregate amount outstanding under the senior bank facilities at June 30, 2003 was (pound)1.6 billion (being approximately (pound)2.0 billion of drawdowns less approximately (pound)400 million cash balances) and the aggregate notional principal amount of the hedging arrangements was (pound)900 million, leaving an unhedged amount of (pound)1.1 billion at June 30, 2003. FOREIGN CURRENCY EXCHANGE RISK We hold derivative financial instruments solely to hedge specific risks and did not hold such instruments for trading purposes. The derivatives are held to hedge against the variability in cash flows arising from the effect of fluctuations in the pound sterling/US dollar exchange rate on our future interest payments and principal payments under our US dollar-denominated debt. We use forward foreign currency contracts or cross currency swaps to fix the pound sterling amount of future US dollar cash outflows for interest payments and principal repayments up to their first call dates or other such dates where we could, at our option, redeem the instruments before maturity. Our results may be materially influenced by future exchange rate movements now that we have largely discontinued the use of hedge accounting, since such derivative financial instruments would be considered speculative for accounting purposes and would be marked to their market value with changes being included immediately in earnings, whereas the underlying liabilities would be re-translated at the spot rate of exchange. Cancellation or redemption of the derivative financial instruments has increased our exposure to foreign currency exchange rate risk on our US dollar-denominated debt. In the three-month period ended September 30, 2002, we terminated all of our then remaining hedging arrangements with a nominal value of $2.3 billion (approximately (pound)1.5 billion). Contracts with a nominal value of $1 billion were settled in cash resulting in an outflow of (pound)28 million. The remaining contracts have a nominal value of $1.3 billion and have yet to be settled for a total cost of (pound)33 million of which (pound)19 million was due on October 1, 2002 but our Board of Directors decided to defer such payment and is considering the payment in the context of our Financial Restructuring. -------------------------------------------------------------------------------- TELEWEST COMMUNICATIONS PLC US GAAP ANALYSIS OF FINANCIAL CONDITION AND RESULTS -------------------------------------------------------------------------------- QUANTITATIVE DISCLOSURE OF MARKET RISK The analysis below presents the sensitivity of the market value, or fair value, of our financial instruments to selected changes in market rates and prices. The changes chosen represent our view of changes that are reasonably possible over a one-year period. The estimated fair value of the hedging instruments identified below are based on quotations received from independent, third-party financial institutions and represent the net amount receivable or payable to terminate the position, taking into consideration market rates as of the measuring date and counterparty credit risk. The estimated fair value of the US dollar-denominated fixed-rate long-term debt is also based on market quotations obtained from independent third-party financial institutions. The hypothetical changes in fair value of hedging instruments are estimated, based on the same methodology used by the third-party financial institutions to calculate the fair value of the original instruments, keeping all variables constant except that the relevant interest rate or exchange rate, as the case may be, has been adjusted to reflect the hypothetical change. Fair value estimates by their nature are subjective and involve uncertainties and matters of significant judgment and therefore cannot be determined precisely. Fair value of debt is the market value of bonds and bank debt, which can change according to market conditions and company specific performance. The amounts generated from the sensitivity analysis are forward-looking estimates of market risk assuming certain adverse market conditions occur. Actual results in the future may differ materially from those projected results due to developments in the global financial markets which may cause fluctuations in interest rates and exchange rates to affect fair values in a manner that varies from the hypothetical amounts disclosed in the table below, which therefore should not be considered a projection of likely future events and losses. The sensitivity analysis is for information purposes only. In practice, market rates rarely change in isolation. INTEREST RATE RISK The sensitivity analysis below presents the hypothetical change in fair value based on an immediate one-percentage point (100 basis points) increase in interest rates across all maturities: --------------------------------------------------------------------------------------------------------------------------------- JUNE 30, 2003 JUNE 30, 2002 ------------- ------------- --------------------------------------------------------------------------------------------------------------------------------- FAIR VALUE HYPOTHETICAL FAIR VALUE HYPOTHETICAL ---------- CHANGE IN ---------- CHANGE IN FAIR VALUE FAIR VALUE ---------- ---------- (POUND)M (POUND)M (POUND)M (POUND)M --------------------------------------------------------------------------------------------------------------------------------- Interest rate swaps................................................ (29) 6 (23) 14 Fixed rate debt.................................................... (1,258) (38) (1,676) (54) --------------------------------------------------------------------------------------------------------------------------------- Based on our variable rate debt outstanding at June 30, 2003 after taking into account our derivative instruments, we estimate that a one-percentage point change in interest rates would have an approximately (pound)11 million impact on our annual net interest expense. FOREIGN CURRENCY EXCHANGE RATE RISK The sensitivity analysis below presents the hypothetical change in fair value based on an immediate 10% decrease in the US dollar to pound sterling exchange rate. -------------------------------------------------------------------------------- TELEWEST COMMUNICATIONS PLC US GAAP ANALYSIS OF FINANCIAL CONDITION AND RESULTS --------------------------------------------------------------------------------
Appears in 1 contract
Samples: Telewest Communications PLC /New/
Financial Restructuring. On September 30, 2002 2002, we announced that we had reached a non-binding preliminary agreement relating to a financial restructuring of our balance sheet (the "Financial Restructuring") with an ad hoc committee of our bondholders (the `"Bondholder Committee'"). That agreement provided provides for the cancellation of all outstanding notes and debentures ("the `Notes') ("), representing approximately (pound)3.5 billionbillion of indebtedness, issued by the Company and Telewest Finance (Jersey) Limited and certain other unsecured foreign exchange hedge contracts ("the `Hedge Contracts'") (approximately (pound)33 million) of the Company in exchange for new ordinary shares New Ordinary Shares (the `"New Shares'") representing 97% of our the issued share capital of the Company immediately after the Financial Restructuring. Under that agreement our The Company's current ordinary shareholders would have received will receive the remaining 3% of our the Company's issued ordinary share capital. We also announced on September 30, 2002 that we were deferring payment of interest under certain of our Notes and the amounts due as a result of the settlement of the Hedge Contracts. Such non-payment continues and has resulted in defaults under our Existing Facility the Group's bank facilities and a number of other financing arrangements. Based on one such default, in respect of non-payment of approximately (pound)10.5 million to a Hedge Contract counter-party, that -------------------------------------------------------------------------------- TELEWEST COMMUNICATIONS PLC US GAAP UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- NOTES TO THE UNAUDITED CONDENDSED CONSOLIDATED FINANCIAL STATEMENTS counter-party has filed a petition for the winding-up of the Company with a UK Court to wind us upcourt. We intend The Company intends to deal with this claim as part of the overall restructuring of our its unsecured debt obligations and do does not believe that the legal action will significantly delay or impede the Financial Restructuring process. We expect The Company will of course continue to meet our its obligations to our its suppliers and trade creditors and this legal action is expected to have no impact on customer service. On January 15, 2003, we announced that we had reached a non-binding agreement with respect to the terms of amended and restated credit facilities with both the steering committee of our Senior Lenders senior lenders and the Bondholder Committee. In addition, the terms of these facilities had have received credit committee approval, subject to documentation and certain other issues, from all of our Senior Lenderssenior lenders, save for those banks which are also creditors by virtue of the unsecured Hedge Contracts with which we will deal in the overall Financial Restructuring. The terms of the amended and restated bank facilities are as follows: o the amended facilities total (pound)2,155 million, comprising term loans of (pound)1,840 million, (pound)190 million of committed overdraft and revolving credit facilities and an uncommitted term facility of (pound)125 million; o the amended facilities do not amortise; and the majority of the facilities will mature on December 31, 2005 with the balance maturing on June 30, 2006; o financial covenants will be re-set to reflect the Company's new business plan; and o the pricing on the facilities will be increased to reflect market sentiment. These amended facilities will replace the Existing Facility Group's existing bank facilities, (the "Senior Secured Facility") and are, as noted above, conditional on various matters, including the satisfactory finalization finalisation of arrangements for dealing with foreign exchange creditors and the completion of our balance sheet restructuring. These amended credit facilities will provide us the Company with substantial liquidity, which is expected to be sufficient to see us the Company through to cash flow positive after completion of the Financial Restructuring. On March 14, 2003, we notified the Senior Lenders that, as a result of two non-recurring items, the VAT decision (see our 20-F, Item 5. Operating and Financial Review and Prospects -- Operating Results -- Results of Operations --Years ended December 31, 2001 and 2002 -- Revenue) and legal and professional costs associated with the Financial Restructuring, and their impact on our net operating cash flow, we would breach certain financial covenants under our bank facility in respect of the quarter ended December 31, 2002. On May 16, 2003, we further notified the Senior Lenders that we were in breach of the financial covenants for the quarter ended March 31, 2003 due to Negotiations are continuing fees paid in connection with the Financial Restructuring and the tightening of covenants. On June 9, 2003, we announced that we had been notified by the Bondholder Committee that, in order to obtain the support of certain of our bondholders, the Bondholder Committee had requested certain changes to the economic and other terms of the preliminary non-binding agreement relating to our Financial Restructuring with the Bondholder Committee, as announced on September 30, 2002, On June 17, 2003, representatives of the Bondholder Committee provided us with a new proposal for the terms of the Financial Restructuring. On July 28, 2003, we announced that we expected the final terms of the Financial Restructuring to provide that ordinary shareholders will receive 1.5% of the issued share capital immediately following the Financial Restructuring. We continue to engage in negotiations with our bondholders, Senior Lenders Company's senior lenders and certain other major stakeholders and with a view to the directors believe that a final agreement will be achieved in due coursetimely completion of the Financial Restructuring.
Appears in 1 contract
Samples: Pence Pence Pence (Telewest Communications PLC /New/)
Financial Restructuring. On September 30, 2002 we announced that we had reached a non-binding preliminary agreement relating to a restructuring of our balance sheet with an ad hoc committee of our bondholders (the `Bondholder Committee'). That agreement provided for the cancellation of all outstanding notes and debentures (the `Notes') (approximately (pound)3.5 billion) and certain other unsecured foreign exchange hedge contracts (the `Hedge Contracts') (approximately (pound)33 million) in exchange for new ordinary shares (the `New Shares') representing 97% of our issued share capital immediately after the Financial Restructuring. Under that agreement our current ordinary shareholders would have received the remaining 3% of our issued ordinary share capital. -------------------------------------------------------------------------------- TELEWEST COMMUNICATIONS PLC US GAAP UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS We also announced on September 30, 2002 that we were deferring payment of interest under certain of our Notes and the amounts due as a result of the settlement of the Hedge Contracts. Such non-payment continues and has resulted in defaults under our Existing Facility and a number of other financing arrangements. Based on one such default, in respect of non-payment of approximately (pound)10.5 million to a Hedge Contract counter-party, that -------------------------------------------------------------------------------- TELEWEST COMMUNICATIONS PLC US GAAP UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- NOTES TO THE UNAUDITED CONDENDSED CONSOLIDATED FINANCIAL STATEMENTS counter-party has filed a petition with a UK Court to wind us up. We intend to deal with this claim as part of the overall restructuring of our unsecured debt obligations and do not believe that the legal action will significantly delay or impede the Financial Restructuring process. We expect to meet our obligations to our suppliers and trade creditors and this legal action is expected to have no impact on customer service. On January 15, 2003, we announced that we had reached a non-binding agreement with respect to the terms of amended and restated credit facilities with both the steering committee of our Senior Lenders and the Bondholder Committee. In addition, the terms of these facilities had received credit committee approval, subject to documentation and certain other issues, from all of our senior lenders (the `Senior Lenders'), save for those banks which are also creditors by virtue of the unsecured Hedge Contracts with which we will deal in the overall Financial Restructuring. These amended facilities will replace the Existing Facility and are, as noted above, conditional on various matters, including the satisfactory finalization of arrangements for dealing with foreign exchange creditors and the completion of our balance sheet restructuring. These amended credit facilities will provide us with substantial liquidity, which is expected to be sufficient to see us through to cash flow positive after completion of the Financial Restructuring. On March 14, 2003, we notified the Senior Lenders that, as a result of two non-recurring items, the VAT decision (see our the 20-F, Item 5. Operating and Financial Review and Prospects -- Operating Results -- Results of Operations --Years ended December 31, 2001 and 2002 -- Revenue) and legal and professional costs associated with the Financial Restructuring, and their impact on our net operating cash flow, we would breach certain financial covenants under our bank facility in respect of the quarter ended December 31, 2002. On May 16, 2003 and August 7, 2003, we further notified the Senior Lenders that we were in breach of the financial covenants for the quarter three-month periods ended March 31, 2003 (two covenants breached) and June 30, 2003 (one covenant breached) due to continuing fees paid in connection with the Financial Restructuring and the tightening of covenants. On June 9, 2003, we announced that we had been notified by the Bondholder Committee that, in order to obtain the support of certain of our bondholders, the Bondholder Committee had requested certain changes to the economic and other terms of the preliminary non-binding agreement relating to our Financial Restructuring with the Bondholder Committee, as announced on September 30, 2002, On June 17, 2003, representatives of the Bondholder Committee provided us with a new proposal for the terms of the Financial Restructuring. On July 28, 2003, we announced that we expected the final terms of the Financial Restructuring to provide that ordinary shareholders will receive 1.5% of the issued share capital immediately following the Financial Restructuring. We continue to engage in negotiations with our bondholders, Senior Lenders and certain other major stakeholders and the directors believe that a final agreement will be achieved in due course.
Appears in 1 contract
Samples: Telewest Communications PLC /New/
Financial Restructuring. On September 30, 2002 we announced that we had reached a non-binding preliminary agreement relating to a restructuring of our balance sheet with an ad hoc committee of our bondholders (the `Bondholder Committee'). That agreement provided for the cancellation of all outstanding notes and debentures (the `Notes') (approximately (pound)3.5 billion) and certain other unsecured foreign exchange hedge contracts (the `Hedge Contracts') (approximately (pound)33 million) in exchange for new ordinary shares (the `New Shares') representing 97% of our issued share capital immediately after the Financial Restructuring. Under that agreement our current ordinary shareholders would have received the remaining 3% of our issued ordinary share capital. We also announced on September 30, 2002 that we were deferring payment of interest under certain of our Notes and the amounts due as a result of the settlement of the Hedge Contracts. Such non-payment continues and has resulted in defaults under our Existing Facility and a number of other financing arrangements. Based on one such default, in respect of non-payment of approximately (pound)10.5 million to a Hedge Contract counter-party, that -------------------------------------------------------------------------------- TELEWEST COMMUNICATIONS PLC US GAAP UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- NOTES TO THE UNAUDITED CONDENDSED CONSOLIDATED FINANCIAL STATEMENTS counter-party has filed a petition with a UK Court to wind us up. We intend to deal with this claim as part of the overall restructuring of our unsecured debt obligations and do not believe that the legal action will significantly delay or impede the Financial Restructuring process. We expect to meet our obligations to our suppliers and trade creditors and this legal action is expected to have no impact on customer service. On January 15, 2003, we announced that we had reached a non-binding agreement with respect to the terms of amended and restated credit facilities with both the steering committee of our Senior Lenders and the Bondholder Committee. In addition, the terms of these facilities had received credit committee approval, subject to documentation and certain other issues, from all of our Senior Lenders, save for those banks which are also creditors by virtue of the unsecured Hedge Contracts with which we will deal in the overall Financial Restructuring. These amended facilities will replace the Existing Facility and are, as noted above, conditional on various matters, including the satisfactory finalization of arrangements for dealing with foreign exchange -------------------------------------------------------------------------------- TELEWEST COMMUNICATIONS PLC US GAAP ANALYSIS OF FINANCIAL CONDITION AND RESULTS -------------------------------------------------------------------------------- creditors and the completion of our balance sheet restructuring. These amended credit facilities will provide us with substantial liquidity, which is expected to be sufficient to see us through to cash flow positive after completion of the Financial Restructuring. On March 14, 2003, we notified the Senior Lenders that, as a result of two non-recurring items, the VAT decision (see our 20-F, Item 5. Operating and Financial Review and Prospects -- Operating Results -- Results of Operations --Years ended December 31, 2001 and 2002 -- Revenue) and legal and professional costs associated with the Financial Restructuring, and their impact on our net operating cash flow, we would breach certain financial covenants under our bank facility in respect of the quarter ended December 31, 2002. On May 16, 2003, we further notified the Senior Lenders that we were in breach of the financial covenants for the quarter ended March 31, 2003 due to continuing fees paid in connection with the Financial Restructuring and the tightening of covenants. On June 9, 2003, we announced that we had been notified by the Bondholder Committee that, in order to obtain the support of certain of our bondholders, the Bondholder Committee had requested certain changes to the economic and other terms of the preliminary non-binding agreement relating to our Financial Restructuring with the Bondholder Committee, as announced on September 30, 2002, On June 17, 2003, representatives of the Bondholder Committee provided us with a new proposal for the terms of the Financial Restructuring. On July 28, 2003, we announced that we expected the final terms of the Financial Restructuring to provide that ordinary shareholders will receive 1.5% of the issued share capital immediately following the Financial Restructuring. We continue to engage in negotiations with our bondholders, Senior Lenders and certain other major stakeholders and the directors believe that a final agreement will be achieved in due course.. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK MARKET RISK The principal market risks to which we were exposed during the three-month period ended March 31, 2003 were: o interest rate changes on variable-rate, long-term bank debt; and o foreign exchange rate changes, generating translation and transaction gains and losses on our US dollar-denominated debt instruments. From time to time we may use derivative financial instruments solely to reduce our exposure to these market risks and we do not enter into these instruments for trading or speculative purposes. Notwithstanding that we intend to cancel all of our outstanding bonds upon completion of the Financial Restructuring, until and unless that restructuring occurs, we will be exposed to foreign exchange fluctuations in respect of the principal and interest on bonds no longer hedged. We have also increased our exposure to variable interest rates, as we have not renewed a significant number of the hedges that have expired in connection with the Existing Facility. INTEREST RATE RISK Our outstanding long-term bank debt is denominated in pounds sterling and bears interest at variable rates. We seek to reduce our exposure to adverse interest rate fluctuations on borrowings under current senior bank facilities principally through interest rate swaps. Our interest rate swaps provide for payments by us at a fixed rate of interest (ranging from 5.475% to 7.355%) and the receipt of payments based on a variable rate of interest. The swaps have maturities ranging from December 31, 2003 to March 31, 2005. The aggregate amount outstanding under the senior bank facilities at March 31, 2003 was (pound)1.6 billion (being approximately (pound)2.0 billion of drawdowns less approximately (pound)400 million cash balances) and the aggregate notional principal amount of the hedging arrangements was (pound)900 million, leaving an unhedged amount of (pound)1.1 billion at March 31, 2003. -------------------------------------------------------------------------------- TELEWEST COMMUNICATIONS PLC US GAAP ANALYSIS OF FINANCIAL CONDITION AND RESULTS -------------------------------------------------------------------------------- FOREIGN CURRENCY EXCHANGE RISK We hold derivative financial instruments solely to hedge specific risks and did not hold such instruments for trading purposes. The derivatives are held to hedge against the variability in cash flows arising from the effect of fluctuations in the pound sterling/US dollar exchange rate on our future interest payments and principal payments under our US dollar-denominated debt. We use forward foreign currency contracts or cross currency swaps to fix the pound sterling amount of future US dollar cash outflows for interest payments and principal repayments up to their first call dates or other such dates where we could, at our option, redeem the instruments before maturity. Our results may be materially influenced by future exchange rate movements now that we have largely discontinued the use of hedge accounting, since such derivative financial instruments would be considered speculative for accounting purposes and would be marked to their market value with changes being included immediately in earnings, whereas the underlying liabilities would be re-translated at the spot rate of exchange. Cancellation or redemption of the derivative financial instruments has increased our exposure to foreign currency exchange rate risk on our US dollar-denominated debt. In the three-month period ended September 30, 2002, we terminated all of our then remaining hedging arrangements with a nominal value of $2.3 billion (approximately (pound)1.5 billion). Contracts with a nominal value of $1 billion were settled in cash resulting in an outflow of (pound)28 million. The remaining contracts have a nominal value of $1.3 billion and have yet to be settled for a total cost of (pound)33 million of which (pound)19 million was due on October 1, 2002. Our Board of Directors has decided to defer such payment and is considering the payment in the context of our Financial Restructuring. QUANTITATIVE DISCLOSURE OF MARKET RISK The analysis below presents the sensitivity of the market value, or fair value, of our financial instruments to selected changes in market rates and prices. The changes chosen represent our view of changes that are reasonably possible over a one-year period. The estimated fair value of the hedging instruments identified below are based on quotations received from independent, third-party financial institutions and represent the net amount receivable or payable to terminate the position, taking into consideration market rates as of the measuring date and counterparty credit risk. The estimated fair value of the US dollar-denominated fixed-rate long-term debt is also based on market quotations obtained from independent third-party financial institutions. The hypothetical changes in fair value of hedging instruments are estimated, based on the same methodology used by the third-party financial institutions to calculate the fair value of the original instruments, keeping all variables constant except that the relevant interest rate or exchange rate, as the case may be, has been adjusted to reflect the hypothetical change. Fair value estimates by their nature are subjective and involve uncertainties and matters of significant judgment and therefore cannot be determined precisely. Fair value of debt is the market value of bonds and bank debt, which can change according to market conditions and company specific performance. The amounts generated from the sensitivity analysis are forward-looking estimates of market risk assuming certain adverse market conditions occur. Actual results in the future may differ materially from those projected results due to developments in the global financial markets which may cause fluctuations in interest rates and exchange rates to affect fair values in a manner that varies from the hypothetical amounts disclosed in the table below, which therefore should not be considered a projection of likely future events and losses. The sensitivity analysis is for information purposes only. In practice, market rates rarely change in isolation. INTEREST RATE RISK The sensitivity analysis below presents the hypothetical change in fair value based on an immediate one-percentage point (100 basis points) increase in interest rates across all maturities: ------------------------------------------------------------------------------------------------------------------------------ MARCH 31, 2003 MARCH 31, 2002 -------------- -------------- ------------------------------------------------------------------------------------------------------------------------------ FAIR VALUE HYPOTHETICAL FAIR VALUE HYPOTHETICAL ---------- CHANGE IN ---------- CHANGE IN FAIR VALUE FAIR VALUE ---------- ---------- (POUND)M (POUND)M (POUND)M (POUND)M ------------------------------------------------------------------------------------------------------------------------------ Interest rate swaps............................................ (34) 9 (22) 15 Fixed rate debt................................................ (712) (16) (1,880) (61) ------------------------------------------------------------------------------------------------------------------------------ Based on our variable rate debt outstanding at March 31, 2002 after taking into account our derivative instruments, we estimate that a one-percentage point change in interest rates would have an approximately (pound)11 million impact on our annual net interest expense. -------------------------------------------------------------------------------- TELEWEST COMMUNICATIONS PLC US GAAP ANALYSIS OF FINANCIAL CONDITION AND RESULTS -------------------------------------------------------------------------------- FOREIGN CURRENCY EXCHANGE RATE RISK The sensitivity analysis below presents the hypothetical change in fair value based on an immediate 10% decrease in the US dollar to pound sterling exchange rate. ------------------------------------------------------------------------------------------------------------------------------------ MARCH 31, 2003 MARCH 31, 2002 -------------- -------------- ------------------------------------------------------------------------------------------------------------------------------------ FAIR VALUE HYPOTHETICAL FAIR VALUE HYPOTHETICAL CHANGE IN CHANGE IN FAIR VALUE FAIR VALUE ----------- ---------- (POUND)M (POUND)M (POUND)M (POUND)M ------------------------------------------------------------------------------------------------------------------------------------ US dollar-denominated long-term debt.............................. (514) (57) (1,282) (142) Foreign currency swap.............................................. No longer No longer 18 22 applicable applicable
Appears in 1 contract
Samples: Telewest Communications PLC /New/
