There are three bank syndicates, one in Switzerland and two in the UK, and in all about 60 banks represented by a steering committee of eight. The banks vote on any deal according to the weight of their holdings.
For the bondholders, negotiations with NTL have been led by five specialist distressed debt investors, between them holding around 50% of NTL's bonds: Angelo, Gordon; Appaloosa; WR Huff Asset Management; Oaktree Capital and Salomon Brothers Asset Management. The recovery level of 40% in the swap represents a good deal for them, having accumulated holdings from as low as 20% of par. There had been speculation that the recovery could be worth as much as 50%.
The next stage of negotiations will be between the banks and bondholders, although with all the bonds equitised, and the leverage of NTL reduced to almost 25% of its current levels, one smaller high yield account questioned how much more the banks could possibly want.
The banks' concerns are likely to focus on directing more cash into NTL's Swiss subsidiary, Cablecom, drawing on the new short term funding provided under the swap arrangement. The bondholders will be supplying $500m of 'debtor in possession' financing, with an additional $300m raised from the sale of NTL's Australian broadcast business. Under the NTL restructuring, the company will be split into two between NT UK/Ireland and Euroco, covering operations in continental Europe, of which Cablecom will be a subsidiary. Bondholders will hold 100% of NTL UK/Ireland's equity, and 87% of Euroco.
The next key date on the NTL calendar is April 30, when the grace period on the bond payments default ends. Technically, if no agreement is reached, the bondholders could force the company into a US bankruptcy. That is a threat more likely to be wielded by the banks, which are structurally senior to the bondholders and closer to the assets. Furthermore, in the UK they could rattle their sabres more ferociously by threatening to put NTL into a creditor-friendly receivership.
Bondholders will want a speedy conclusion of the deal, in case a strategic investor such as John Malone's Liberty Media chooses to renew its interest in NTL. Liberty Media is already at the centre of the Eu6.5bn debt-to-equity restructuring of another European cable group, United Pan-Europe Communications. The difference in negotiation power, however, is that whereas Liberty Media has built up a major bond stake in UPC, via its subsidiary UGC, it has no such position in NTL.
Should the debt swap deal be concluded successfully, the paperwork will be so heavy that NTL is not expected to come out of Chapter 11 until August or September. The future position of NTL's management will then come under scrutiny.