Dear Sirs Amendment Request Letter
Exhibit 99.2
[LETTERHEAD OF VIRGIN MEDIA INC.]
13
October 2008
Dear
Sirs
Amendment
Request Letter
We refer
to the Senior Facilities Agreement (the “SFA”) dated 3 March 2006, as
amended and restated from time to time, between, among others, Virgin Media Inc.
(the “Company”), Virgin
Media Investment Holdings Limited, Deutsche Bank AG, London Branch, ▇▇▇▇▇▇▇
▇▇▇▇▇ International, ▇.▇. ▇▇▇▇▇▇ plc and The Royal Bank of Scotland plc as the
Bookrunners and Mandated Lead Arrangers, Deutsche Bank AG, London Branch, as
facility agent and security trustee, Deutsche Bank AG, New York Branch, as US
paying agent, and GE Corporate Banking Europe SAS as administrative
agent.
Capitalised
terms used in this letter shall have the same meaning ascribed to such terms in
the SFA, unless otherwise specified. The provisions of Clause 46
(Governing Law) and
Clause 47 (Jurisdiction) of the SFA
shall apply to this letter as if the same were set out in full in this letter,
except that references to the SFA are to be construed as references to this
letter.
1. BACKGROUND
AND OVERVIEW
In order
to fund the merger of NTL Incorporated and Telewest Global, Inc. and purchase of
Virgin Mobile Holdings (UK) plc in 2006, the Company entered into the SFA with
total outstanding indebtedness of £6.2 billion. Since then, the
Company has made significant progress in improving its financial performance and
position. OCF has risen from £1,252 million for the twelve months
ending June 30, 2007 to £1,320 million for the twelve months ending June 30,
2008. The Company has repaid ca. £900 million of its indebtedness
under the SFA from cash generated from its operations and from the proceeds of
subordinated indebtedness, significantly reducing its net senior leverage in the
process.
The
Company has brought in a new experienced management team that is focusing on the
core strengths of the business and maximising the generation of cash flow. The Company has also
recently expanded its Board with the addition of five new directors with
significant relevant experience. The Company continues to enjoy
stable credit ratings from ▇▇▇▇▇’▇, S&P and Fitch. The Company is
on track to meet its debt obligations in the near term and expects to fund its
next material amortisation payment, due in Q1 2010, from available cash
generated from its operations. Moreover, absent the proposed
amendments, the Company does not anticipate needing relief in the near term
under the financial covenants of the SFA.
2. REASON
FOR AMENDMENT REQUEST
The
Company has remaining amortisation payments under the A tranches of the SFA
totalling £2,072 million due from 2010 through to 2011 (plus £4 million due in
2009). While the Company expects to be able to generate substantial
cash flow to meet some of these payments, it does not currently expect to be
able to meet all of these obligations in this way. The Company
originally anticipated entering into a new credit facility by mid 2009 to
refinance these obligations. However, in light of the disruption to
the credit markets, the Company has decided to proactively address these
amortisation payments. The amendments the Company is seeking will
allow the Company significantly more time to seek a complete refinancing of the
principal amounts that will remain outstanding under the SFA after the amendment
process is complete. By seeking the amendments today, the Company
aims to remove any potential future concerns that might otherwise arise over the
Company’s ability to meet its principal amortisation obligations and permit its
management to focus on continuing to enhance operations and grow cashflow over
the next three years. The Company therefore is requesting amendments
that it believes are in the best interest of both the Company and its lenders in
light of the current status of the credit markets.
The
Company’s top ten relationship banks have unanimously confirmed their support
for the proposed amendments.
3. THE
PROPOSAL
The
principal aims of the proposed amendments (the “Proposed Amendments”) are
to:
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|
(i)
|
defer,
to the extent not repaid as part of the amendment process, the remaining
three amortisation payments and the final maturity date under the A
tranches and the final maturity date of the Revolving Facility until 3
June 2012;
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(ii)
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obtain
agreement of the Lenders under the B tranches to relinquish their pro rata right to
voluntary and mandatory prepayments until the A tranches are
repaid;
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(iii)
|
seek
approval to permit additional high yield debt offerings that will be pari passu to the
existing high yield bonds, with 100% of the net proceeds being applied to
repay indebtedness under the SFA;
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(iv)
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provide
flexibility to add tranches to the SFA that will have a maturity no
earlier than the final maturity of the B tranches to be used solely to
facilitate any additional refinancing of the A and B tranches under the
SFA;
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(v)
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reset
the Interest Coverage Ratio and Leverage
Ratio;
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(vi)
|
adjust
the definition of Consolidated Operating Cash Flow for one-off
restructuring charges; and
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(vii)
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add
an additional debt basket for tax-related financings to be used to repay
debt under the SFA.
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The
effectiveness of the amendment of the A tranches and the Revolving Facility and
the reset of the Interest Coverage Ratio and Leverage Ratio (amendments (i) and
(v) above) will be conditioned on the Company’s repayment of at least 20% of the
outstanding amounts under the A tranches as of the date of this
letter. The Company will have until 30 April 2009 or, if later, six
months after the effective date of the other Proposed Amendments, subject to a
further extension right, to satisfy this repayment condition. The
Company anticipates using cash generated from operations, cash on its balance
sheet and proceeds from debt raised in any high yield offering or other debt
incurred to meet this repayment condition. At present the
amortisation schedule of the Company’s debt is as follows:
After
giving effect to the Proposed Amendments (assuming that 100% of the Lenders
under the A and B tranches give their consent as outlined above), the
amortisation schedule of the Company’s debt would be as follows (after giving
effect to the 20% paydown of the Company’s A tranches):
The
Company appreciates that Lenders should be compensated for the changes being
requested. Accordingly, in connection with the amendment request, the
Company will pay to consenting Lenders fees and adjustments to the margins
applicable to particular tranches as follows:
|
Tranche
|
Consent
Fee
|
Fee
for transfer to new Tranche
(the
“Additional Consent Fee”)
|
Margin
Increase under new Tranche
|
|
A/A1
|
25
bps
|
100
bps
|
137.5
bps
|
|
B1
– B6
|
25
bps
|
100
bps
|
150
bps
|
|
C
|
25
bps
|
----
|
----
|
|
Revolving
Facility
|
25
bps
|
100
bps
|
137.5
bps
|
|
4.
|
AMENDMENT
PROCESS
|
All
Lenders with participations in the SFA as of 13 October 2008 (the “Record Date”) shall be
permitted to vote on the Proposed Amendments and receive consent fees in
connection therewith.
The
Proposed Amendments will require a vote of the Instructing Group to put in place
(in this case, both 66 ⅔% of the existing A and B tranches, as well as the
Revolving Facility (taken together) and 66 ⅔% of the existing A, B and C
tranches, as well as the Revolving Facility (taken together)). Each
Lender will be requested to consent to the Proposed Amendments in their
entirety.
Additionally,
each A Lender, each B Lender and each Revolving Facility Lender must
individually consent to roll its participation in each of the A tranches, the B
tranches and the Revolving Facility containing the new provisions (amendments
(i), (ii) and (iii) in section 5 of this letter) in order for such provisions to
be effective with respect to those particular Lenders (each, a “Roll”), but no consent of any
other Lender is necessary for a Lender to Roll its participation or for the new
provisions to be effective in relation to the Lender electing to
Roll.
In order
for the Administrative Agent to accept the consent of a Lender to Roll, a Lender
must have consented to Roll all of its participations in all the relevant
tranches of the SFA as of the Record Date. Lenders can consent to the
Proposed Amendments without consenting to Roll, but cannot consent to Roll
without consenting to the Proposed Amendments.
5. SUMMARY
OF PROPOSED AMENDMENTS
The
requested amendments to the SFA will be documented by an amendment and
restatement of the SFA (the “Amendment Agreement”) which
will be made available to the Lenders via Intralinks.
Below is
a summary description of the Proposed Amendments:
(i)
For A tranches, deferring all principal payments to June 2012 through creation
of new A tranches
The SFA
will be amended to create two new A tranches (A2 (corresponding to the existing
A tranche) and A3 (corresponding to the existing A1 tranche), each a “New A Tranche” and
collectively, the “New A
Tranches”), in addition to the existing A tranche and A1
tranche. The New A Tranches will have no amortisation payments prior
to final maturity and their final maturity date will be 3 June 2012, but they
will retain their right to pro
rata sharing of voluntary and mandatory prepayments.
While the
transfer of commitments from the A tranche and the A1 tranche to the New A
Tranches will be effective (for those A Lenders consenting to such transfer) at
the same time that the other Proposed Amendments become effective, the changes
to the amortisation profile and final maturity date of the New A Tranches will
only become effective after 20% of the A Facility Outstandings as of the Record
Date have been repaid (the “Paydown
Condition”). The Company will initially have until 30 April
2009 or, if later, six months after the effective date of the Amendment
Agreement to satisfy the Paydown Condition. The Company can extend
this time period by three months by making a 10 bps payment to the Lenders under
the New A Tranches and Revolving Facility 2 (as defined below). The
Company may use proceeds from any source, including from debt and asset
dispositions as well as cash on balance sheet, to meet this
condition.
Following
the implementation of the Proposed Amendments, A Lenders who do not consent to
Roll their participations will continue to participate in the existing A and A1
tranches.
The
margin ratchet will be amended for Lenders under the New A Tranches as
follows:
|
Old
Leverage Ratio
|
Old
Margin
|
New
Leverage Ratio
|
New
Margin
|
|
Less
than 3.00 : 1
|
1.250%
|
Less
than 3.00 : 1
|
2.625%
|
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Greater
than or equal to 3.00 : 1 but less than 3.40 :
1
|
1.375%
|
Greater
than or equal to 3.00 : 1 but less than 3.40 :
1
|
2.750%
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Greater
than or equal to 3.40 : 1 but less than 3.80 : 1
|
1.500%
|
Greater
than or equal to 3.40 : 1 but less than 3.80 : 1
|
2.875%
|
|
Greater
than or equal to 3.80 : 1 but less than 4.20 :
1
|
1.625%
|
Greater
than or equal to 3.80 : 1 but less than 4.20 :
1
|
3.000%
|
|
Greater
than or equal to 4.20 : 1 but less than 4.50 :
1
|
1.750%
|
Greater
than or equal to 4.20 : 1
|
3.125%
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Greater
than or equal to 4.50 : 1 but less than 4.80 : 1
|
1.875%
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||
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Greater
than or equal to 4.80 : 1 but less than 5.00 : 1
|
2.125%
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||
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Greater
than or equal to 5.00
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2.250%
|
Additional Consent
Fee
The
Company will pay A Lenders who consent to Roll into the New A
Tranches:
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●
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25 bps at the time the Amendment Agreement is signed and all conditions precedent to the effectiveness of the Amendment Agreement have been satisfied; and |
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●
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75 bps at the time the Paydown Condition is satisfied. |
Additionally,
the Margin for the New A Tranches will be increased by 137.5 bps. The
increase in the Margin under the New A Tranches will become effective at the
time the Paydown Condition is satisfied.
(ii)
Extending maturity of the Revolving Facility
The
Revolving Facility has a Final Maturity Date which is contemporaneous with that
of the A and A1 Facilities on 3 March 2011. The Company is proposing
that each individual Lender under the Revolving Facility transfer its Revolving
Facility into a new revolving facility (“Revolving Facility 2”) with
the same final maturity date as the New A Tranches on 3 June 2012, to include
margin ratchet provisions that will be the same as those for the New A Tranches
outlined in paragraph (i) above.
While the
transfer of commitments from the Revolving Facility to Revolving Facility 2 will
be effective (for those Revolving Facility Lenders consenting to such transfer)
at the same time that the other Proposed Amendments become effective, the change
to the Final Maturity Date of Revolving Facility 2 will only be effective on
satisfaction of the Paydown Condition.
Following
the implementation of the Proposed Amendments, Revolving Facility Lenders who do
not consent to Roll their participations will continue to participate in the
existing Revolving Facility.
Additional Consent
Fee
The
Company will pay Revolving Facility Lenders who consent to Roll into Revolving
Facility 2:
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●
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25 bps at the time the Amendment Agreement is signed and all conditions precedent to the effectiveness of the Amendment Agreement have been satisfied; and |
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●
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75 bps at the time the Paydown Condition is satisfied. |
Additionally, the Margin for Revolving Facility 2 will be increased by 137.5 bps. The increase in the Margin under Revolving Facility 2 will become effective at the time the Paydown Condition is satisfied.
(iii)
Option for Lenders of the B tranches to suspend rights to receive pro rata amounts of
prepayments
To assist
the future amortisation profile of the SFA, the Company is requesting Lenders
under the existing B1 to B6 tranches agree to forgo their right to receive
a pro rata portion of
voluntary and mandatory prepayments under the SFA until all A tranches have been
repaid in full. By consenting to this change, an existing B Lender
would have its commitment transferred into the newly created B7 to B12 tranches
(each a “New B Tranche”
and collectively, the “New B
Tranches”) which correspond to the existing B1 to B6 tranches,
respectively, and which do not have the right to pro rata
repayments. B Lenders will be asked to elect to move their existing
commitment in the B tranches to the New B Tranches with their amended payment
terms.
The
transfer of the commitments of consenting Lenders from the existing B1 to B6
tranches to the New B Tranches will occur at the time of the effectiveness of
the Amendment Agreement and is not subject to the Paydown
Condition.
Following
the implementation of the Proposed Amendments, B Lenders who do not consent to
the Roll their participations will continue to participate in the existing B1-B6
tranches, whose paydown rights will not have been changed.
Additional Consent
Fee
The
Company will pay B Lenders who consent to Roll into the New B Tranches 100 bps
at the time the Amendment Agreement is signed and all conditions precedent to
the effectiveness of the Amendment Agreement have been satisfied.
Additionally,
the Margin for the New B Tranches will be increased by 150 bps at the time the
Amendment Agreement is signed and all conditions precedent to the effectiveness
of the Amendment Agreement have been satisfied.
(iv)
Permit issuance of high yield notes to repay amounts under SFA
In order
to provide the Company with the ability to refinance the loans under the SFA,
the Company proposes amendments to allow for additional high yield notes to be
issued by Virgin Media Finance plc. The Proposed Amendments would
allow the Company to apply proceeds from high yield notes issued by Virgin Media
Finance plc towards the refinancing of the A and B tranches. The high
yield notes will be issued on the following conditions:
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●
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the notes will be issued on a pari passu basis with the existing high yield notes issued by Virgin Media Finance PLC; |
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●
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100% of the net proceeds of the notes shall be applied to prepay Outstandings under the SFA in the following order: (i) all A tranches and the B1-B6 tranches, pro rata, (ii) the B7-B12 tranches and any Additional Loans (as defined below), pro rata, (iii) the C tranche, and (iv) the revolving facilities; |
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●
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no Event of Default is outstanding or occurs as a result of the issuance of the notes; |
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●
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the final maturity date of the notes is no earlier than the maturity date of the high yield notes that mature in 2014; and |
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●
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any guarantee provided by Virgin Media Investment Holdings Limited is provided on subordinated terms consistent with the HYD Intercreditor Agreement. |
(v)
Permit issuance of new term loans
In order
to allow the Company additional flexibility with respect to the refinancing of
the loans under the SFA, the Company is requesting the ability to create
additional term loan tranches in the future (the “Additional
Loans”). The following conditions would need to be satisfied
prior to drawdown under any Additional Loan:
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●
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no Event of Default is outstanding or occurs as a result of a drawdown under any Additional Loan; |
|
●
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the Additional Loans have a final maturity date of no earlier than 3 September 2012, with no scheduled amortisation payments prior to such date; |
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●
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voluntary and mandatory prepayments will be applied to the Additional Loans pro rata with the B7-B12 tranches, after the repayment in full of all A tranches and the B1-B6 tranches; |
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●
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the margin payable on the Additional Loans may not exceed 0.75% per annum higher than the highest Margin on the B7-B12 tranches; |
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●
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100% of the gross proceeds from the Additional Loans will be applied to prepay Outstandings under the SFA in the following order: (i) all A tranches and the B1-B6 tranches, pro rata, (ii) the B7-B12 tranches and any Additional Loans, pro rata, (iii) the C tranche, and (iv) the revolving facilities; and |
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●
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if the Additional Loans contain covenants and undertakings in addition to those in the SFA, such additional covenants and undertakings will become part of the SFA for the benefit of all Lenders. |
(vi)
Adjustments to financial covenants
As a
result of the amendments described above, the Company’s interest expense will
increase. In order to accommodate, among other things, such increase
and other effects of the amendments, the Company proposes to reset the Interest
Coverage Ratio and Leverage Ratio as follows, effective on satisfaction of the
Paydown Condition:
|
Quarter Date
|
Leverage Ratio
|
Interest
Coverage Ratio
|
||
|
Pre-Amendment
|
Post-Amendment
|
Pre-Amendment
|
Post-Amendment
|
|
|
30
September 2008
|
4.90x
|
NC
|
2.55x
|
NC
|
|
31
December 2008
|
4.90x
|
NC
|
2.60x
|
NC
|
|
31
March 2009
|
4.85x
|
NC
|
2.65x
|
2.60x
|
|
30
June 2009
|
4.70x
|
NC
|
2.80x
|
2.60x
|
|
30
September 2009
|
4.40x
|
NC
|
3.00x
|
2.60x
|
|
31
December 2009
|
4.15x
|
4.25x
|
3.15x
|
2.60x
|
|
31
March 2010
|
4.00x
|
4.25x
|
3.35x
|
2.60x
|
|
30
June 2010
|
4.00x
|
4.10x
|
3.55x
|
2.65x
|
|
30
September 2010
|
3.70x
|
4.00x
|
3.75x
|
2.70x
|
|
31
December 2010
|
3.60x
|
3.90x
|
3.75x
|
2.75x
|
|
31
March 2011
|
3.40x
|
3.75x
|
4.00x
|
2.85x
|
|
30
June 2011
|
3.25x
|
3.70x
|
4.00x
|
2.90x
|
|
30
September 2011
|
3.00x
|
3.60x
|
4.00x
|
3.00x
|
|
31
December 2011
|
3.00x
|
3.50x
|
4.00x
|
3.05x
|
|
31
March 2012
|
3.00x
|
3.50x
|
4.00x
|
3.10x
|
|
30
June 2012
|
3.00x
|
NC
|
4.00x
|
3.20x
|
|
30
September 2012
|
3.00x
|
NC
|
4.00x
|
NC
|
|
31
December 2012
|
3.00x
|
NC
|
4.00x
|
NC
|
_______________________
NC: No changes to existing
covenant level requirement
(vii)
Other amendments
Change
to definition of Consolidated Operating Cashflow
As a
result of the Company’s expected restructuring plans, the Company proposes the
following paragraph be added to the definition of Consolidated Operating
Cashflow in the SFA as sub-paragraph (xii):
“restructuring
charges and related costs of the type referred to in the Ultimate Parent’s
business plan dated 13 October 2008 in an amount of up to £75 million for the
2008 and 2009 financial years (together, “Year 1”) and up to £15 million
in the 2010 financial year (“Year 2”) provided that any
unutilised amounts from Year 1 may be carried forward to Year 2 (and any such
amounts carried forward will be utilised before any other amounts in Year 2) and
any unutilised amounts from Year 2 (excluding any amounts carried forward from
Year 1) may be carried forward and added back to Consolidated Operating Cashflow
in the 2011 financial year, to the extent spent in such 2011 financial
year”
Additional
debt basket
In order
to allow the Company additional flexibility with respect to the refinancing of
the loans under the SFA and to meet the Paydown Condition, the Company proposes
the addition of a further debt basket for tax-related financings in the sum of
£500 million on the condition that 100% of the net proceeds raised are applied
to prepay Outstandings under the SFA in the following order: (i) all A tranches
and the B1-B6 tranches, pro
rata, (ii) the B7-B12 tranches and any Additional Loans, pro rata, (iii) the C
tranche, and (iv) the revolving facilities.
Conforming
changes
Conforming
changes to the financial definitions will be made to back out the effect of fees
and costs incurred in effecting the contemplated consents and amendments as well
as similar costs going forward.
6. REQUEST
FOR CONSENT
In
accordance with Clause 43 (Amendments) of the SFA, the
Company is seeking and hereby requests the consent of:
|
|
(i)
|
the
Instructing Group to making the Proposed Amendments, including any further
consequential amendments required to give effect to the Proposed
Amendments;
|
|
|
(ii)
|
each
individual Lender with A Facility Outstandings and/or A1 Facility
Outstandings for the transfer of such Outstandings to the corresponding
New A Tranches;
|
|
|
(iii)
|
each
individual Lender with Revolving Facility Outstandings or Commitments for
the transfer of such Revolving Facility Outstandings or Commitments to
Revolving Facility 2; and
|
|
|
(iv)
|
each
individual Lender with B1 to B6 Facility Outstandings for the transfer of
such B1 to B6 Facility Outstandings to the corresponding New B
Tranches,
|
on
condition that the Amendment Agreement reflects the matters referred to in this
letter and the Company pays the consent fees referred to in section 7 of this
letter.
This
amendment request is not an offer to amend the SFA, and the Company reserves the
right to withdraw the Proposed Amendments, or to amend, change or substitute any
parts thereof, at any point prior to the execution of the Amendment
Agreement.
7. CONSENT
FEE
On the
conditions that (i) the Amendment Agreement is executed and (ii) consent is
provided by 12 noon (London time) on 31 October 2008, the Company agrees to pay
to each Lender that consents (ratably in accordance with such ▇▇▇▇▇▇’s
Proportion as at the Record Date of the Outstandings as at the Record Date)
to:
|
(a)
|
the
Proposed Amendments, a consent fee of 25 bps, payable on the date the
Amendment Agreement is signed and all conditions precedent to the
effectiveness of the Amendment Agreement have been
satisfied;
|
|
(b)
|
the
Roll of its Outstandings (and, with respect to the Revolving Facility, its
Commitments) to the corresponding New A Tranches, Revolving Facility 2 and
corresponding New B Tranches,
respectively:
|
| (i) |
with
respect to such ▇▇▇▇▇▇’s A Facility Outstandings and A1 Facility
Outstandings, an
Additional Consent Fee of 100 bps, 25 bps of which is payable on the date
the Amendment
Agreement is signed and all conditions precedent to the effectiveness of
the Amendment Agreement have been satisfied, and 75 bps of which is
payable on the date the Paydown Condition is
satisfied;
|
|
(ii)
|
with
respect to such ▇▇▇▇▇▇’s Revolving Facility Commitments, an Additional
Consent Fee of 100 bps, 25 bps of which is payable on the date the
Amendment Agreement is signed and all conditions precedent to the
effectiveness of the Amendment Agreement have been satisfied, and 75 bps
of which is payable on the date the Paydown Condition is satisfied;
and
|
|
(iii)
|
with
respect to such ▇▇▇▇▇▇’s B1 to B6 Facility Outstandings, an Additional
Consent Fee of 100 bps, payable on the date the Amendment Agreement is
signed and all conditions precedent to the effectiveness of the Amendment
Agreement have been satisfied.
|
8. RESPONSE
TO AMENDMENT REQUEST
Please
respond to this amendment request by returning the Consent Form (provided
separately) to the Facility Agent, in accordance with the instructions
therein. The Consent Form must be received by the Facility Agent by
12 noon (London time) on 31 October 2008.
We look
forward to receiving your positive response to this amendment
request.