Magyar Telecom B.V. Announces Agreement on Terms of Financial Restructuring with Noteholder Group

Magyar Telecom B.V. Announces Agreement on Terms of Financial Restructuring with Noteholder Group

Restructuring Agreement

LONDON--(BUSINESS WIRE)-- Magyar Telecom B.V. ("Matel", the "Group" or the "Company") is pleased to announce that it has entered into an agreement to implement a restructuring of its balance sheet (the "ProposedRestructuring") with an informal group (the "NoteholderGroup") of holders of its 9.50% Senior Secured Notes due 2016 (the "ExistingNotes"). The Noteholder Group, which represents approximately 40% of the net total outstanding €328,956,000 of Existing Notes, has unanimously signed a restructuring agreement (the "RestructuringAgreement"). The Noteholder Group includes the five largest identified holders. Under the terms of the Restructuring Agreement the Noteholder Group has agreed, amongst other things, to support the Proposed Restructuring and to not take any enforcement action in respect of the Company's failure to pay interest due on 15 June 2013 for a period to enable the Proposed Restructuring to be implemented. The Proposed Restructuring, subject to requisite approvals and participation, will result in a significant reduction in the Company's debt and its related interest expense. The directors of the Company believe that the Proposed Restructuring will provide the Group with a strengthened capital structure and additional free cash flow to invest in targeted growth initiatives.

Under the terms of the Proposed Restructuring, €155 million of Existing Notes will be retained or exchanged into new notes (the "ReinstatedNotes"). The Reinstated Notes will bear cash interest at 7% (subject to a PIK toggle) and PIK interest of 2%, which shall accrue from 15 June 2013 and be paid semi-annually in arrears on 15 December and 15 June. The PIK toggle will allow the Company to capitalise a portion of the cash interest at a rate of 9% to the extent necessary to maintain a minimum liquidity level of €10 million. The remaining €174 million of Existing Notes, together with all accrued interest on the Existing Notes up to the closing date of the Proposed Restructuring, will be converted into 49 per cent. of the pro-forma post-restructuring equity in the Group. Noteholders' equity interests will be stapled to the Reinstated Notes. €21 million of Existing Notes held by the Company in treasury will be written-off in full on the closing of the transaction.

The equity sponsor, Mid Europa Partners (the "Sponsor") will invest €25 million on closing of the restructuring consisting of €15 million as equity and €10 million as debt (the "SponsorNotes"), which will rank pari passu with the Reinstated Notes. The €15 million new equity investment will be used to buyback the Reinstated Notes (and corresponding equity entitlement) via a reverse Dutch auction. The Sponsor will retain 51 per cent. of the pro-forma post-restructuring equity in the Group (subject to pro-rata potential dilution, along with pro-forma post-restructuring equity held by the holders of the Reinstated Notes, as a result of any new management incentive plan).

On closing, the Sponsor will have the rights to appoint a majority of the board of directors of the Company (the "Board"). The Noteholders (in their capacity as shareholders) will also be able to appoint directors to the Board ("NoteholderDirectors"), whose approval will be required in relation to certain strategic matters. If certain actions are not implemented in the medium term, then the Noteholders (in their capacity as shareholders) will have the right to appoint a majority of the directors to the Board. The Sponsor will not receive any payment for management or other services, but will receive payments on the Sponsor Notes (pari passu with the Reinstated Notes) and be eligible to receive between 3% and 5% of net sale proceeds (depending on amount of proceeds received).

A consent fee of 0.25 per cent. of holdings of Existing Notes will be payable on closing of the transaction to Noteholders that are party to or accede to the Restructuring Agreement by 15 August 2013. Holders of the Existing Notes who have not yet signed the Restructuring Agreement, but are interested in doing so, are invited to contact the legal advisers to an ad hoc committee of Noteholders, Bingham McCutchen (London) LLP, whose details are provided at the end of this statement. The Company has engaged an Information Agent, Lucid Issuer Services Limited, who will be responsible for compiling the accession letters to the Restructuring Agreement. The details of Lucid Issuer Services Limited are also provided at the end of this statement.

It is expected that the Proposed Restructuring will be completed by 15 October 2013 and additional details around the implementation will be provided to the Noteholders in due course.

Financial Projections

In agreeing the Restructuring Agreement with the Noteholder Group, financial projections were provided by the Company to the Noteholder Group for the remainder of fiscal year 2013 (ending 31 December 2013) and for the following five fiscal years (ending 31 December 2018).

For comparative purposes, the projections below have been presented consistent with the accounting policies used by the Company before 1 January 2013. From 1 January 2013 the Company changed its accounting policy mostly with respect to certain groups of capital expenditures, whereby certain items previously reported as capital expenditures are treated as operating expenses or cost of sales. 2013 figures have also been presented below on a restated basis consistent with the new accounting policy change.

The Company continues to operate in a weak macroeconomic environment with competitive pressures strong across its residential, corporate and wholesale segments. Government policy changes, most notably the introduction of per minute telecoms tax in mid-2012 and the utility tax from January 2013, have had a further significant adverse impact on cash flow generation. The management team continues to focus on its bundling strategies, namely its TV led strategy in the Residential segment, expected to yield further growth in multiplay bundles and Hosting and IT Services expansion in the Corporate segment. The Company will also continue its cost cutting efforts, with annual opex and capex savings of HUF 4.0bn and HUF 500m, respectively, targeted by 2018.

The Company's cash balance as of 31 May 2013 was HUF 6,945m.

Summary Projections (HUFm)
 Projected Year Ending 31 December Restated
2013 2014 2015 2016 2017 20182013(1)
Total Revenue47,96746,44546,82446,46147,04146,95148,139
Gross Margin38,18236,48135,83334,77534,63133,94437,490
Operating Expenses(18,454)(18,222)(18,027)(17,794)(17,564)(17,348)(18,949)
Extraordinary Taxes(3,771)(3,602)(3,514)(3,414)(3,375)(3,309)(3,771)
EBITDA less Ext. Taxes15,95714,65714,29213,56713,69213,28714,770
Local Business Tax(845)(807)(793)(769)(766)(751)(845)
Capital Expenditure(10,785)(10,612)(10,305)(10,102)(9,536)(9,399)(9,599)
Change in Working Capital139501876(218)44139
Other Cash Flow Items(5,153)(1,407)(931)(916)(916)(916)(5,153)
Free Cash Flow(687)2,3312,2701,8562,2562,265(687)
Capex Breakdown (HUFm)
 Projected Year Ending 31 December Restated
2013 2014 2015 2016 2017 20182013(1)
Corporate & Wholesale3,7793,8423,6773,6003,1983,2133,455
Total Variable Capex7,6687,3437,0546,8926,3326,2197,344
Fixed Capex3,9173,7693,7513,7093,7053,6803,055
Cost Cutting(800)(500)(500)(500)(500)(500)(800)
Total Capex10,78510,61210,30510,1029,5369,399 9,599


(1) Figures are presented consistent with the Company's change in accounting policy mostly regarding the treatment of certain groups of capital expenditures

Residential KPIs
 Projected Year Ending 31 December
2013 2014 2015 2016 2017 2018





In addition to the assumptions utilised for the business plan, the Company is continually evaluating potential investment projects that represent an attractive use of capital and has identified several initiatives across all segments to offset the structural decline in its legacy copper business and drive growth across the platform. The Company's investment case assumes several initiatives targeting enhanced network capability, expanded product offerings and increased scale. Specific investments considered include further upgrading the cable network through conversions to DOCSIS 3.0 and digitalisation, continuing the fibre rollout program and further building out the wholesale network. The initiatives that comprise the investment case are discrete projects that can be pursued individually or in combination. Like other infrastructure investments made by our peers in the telecommunications industry, these projects require a significant upfront capex investment with incremental benefits realised over the long term, much of which is expected beyond the projection period.

The incremental benefit and cost of pursuing a broad investment case is outlined below:

Incremental Cost / Benefit of Initiatives (HUFm)
 Projected Year Ending 31 December
2014 2015 2016 2017 2018
Total Capex3,7481,3952,0271,2991,554
Operating Cash Flow (Use)(2,090)(1,795)(634)270987

In case of any enquiries, please contact one of the advisers below:


Company Advisers


Houlihan Lokey (Europe) Limited

Chris Foley

Tel: +44 20 7747 2717

White & Case LLP

Stephen Phillips

Tel: +44 20 7532 1221


Ad Hoc Committee Advisers

Moelis & Company

Charles Noel-Johnson

Tel: +44 20 7634 3500


Rohan Choudhary

Tel: +44 20 7634 366


Bingham McCutchen LLP

Neil Devaney

Tel: +44 20 7661 5430


James Terry

Tel: +44 20 7661 5310

Information Agent

Lucid Issuer Services Limited

Sunjeeve Patel / Yves Theis

Tel: +44 20 7704 0880

Disclosure Statement

This press release and presentation includes forward-looking statements. These forward-looking statements include all matters that are not historical facts, statements regarding Magyar Telecom B.V.'s (together with its subsidiaries, the "Company") intentions, beliefs, projections or current expectations concerning, among other things, the Company's results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which the Company operates. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. The Company cautions you that forward-looking statements are not guarantees of future performance and that the actual results of operations, financial condition and liquidity and the development of the industry in which the Company operates may differ materially from those made in or suggested by the forward-looking statements contained in this press release and presentation. Factors that may cause the Company's actual results to differ materially from those expressed or implied by the forward-looking statements in this press release and presentation, include, but are not limited to: (i) the Company's inability to execute its business strategy, (ii) the continuing effects of the global economic crisis and in particular the effects of macroeconomic issues affecting the countries relevant to the Company's operations, (iii) the Company's ability to generate growth or profitable growth and (iv) political changes in countries relevant to the Company's operations, including changes in taxation. In addition, even if the Company's results of operations, financial condition and liquidity and the development of the industry in which the Company operates are consistent with the forward-looking statements contained in this press release and presentation, those results or developments may not be indicative of results or developments in future periods. The Company does not assume any obligation to review or confirm analyst expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events that occur or circumstances that arise after the date of this press release and presentation.

This press release and presentation is not an offer to sell or a solicitation of an offer to buy or exchange or acquire securities in the United States and no offer, tender offer, sale, exchange or acquisition of securities is proposed in a jurisdiction where such offer, tender offer, sale, exchange or acquisition would be illegal. The securities referenced in this press release and presentation may not be offered, sold, exchanged or delivered in the United States absent registration or an applicable exemption from the registration requirement under the U.S. Securities Act of 1933, as amended. The securities mentioned in this press release and presentation are not, and will not be, registered in the United States.

Magyar Telecom B.V.
Andrea Rába, 003618011651
Accounting and Financial Reporting Senior Manager

KEYWORDS:   Europe  Netherlands


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