• Cable, Gov’t agree on restructuring mobile operator’s debt

• Debt-for-equity conversion involves ‘pretty hefty’ numbers

• Lower facilities fees and interest cut on $70m owner loan

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Cable Bahamas’ top executive yesterday asserted that an “up to” $55m refinancing package agreed with the Government will “set up Aliv for future success”.

Franklyn Butler, the BISX-listed communications provider’s executive vice-chairman, president and chief executive, told Tribune Business that the deal - which includes a “pretty hefty” debt-for-equity swap - will “fundamentally strengthen the balance sheet” of The Bahamas’ second mobile operator while also reducing its operational spending.

The refinancing terms, which were revealed in the footnotes Cable Bahamas’ just-released 2023 annual report, commit Cable Bahamas and the Government to inject up to a combined $55.129m into Aliv. Their contributions will be equivalent to their current shareholdings in the mobile operator, meaning that the Government - as owner of a 51.75 percent stake - will provide the majority.

Its financing will be provided via HoldingCo, which holds the Government’s majority interest. Cable Bahamas owns the remaining 48.25 percent, but has Board and management control, and the Aliv refinancing also alters the interest rate, associated calculations and repayment schedules on the BISX-listed provider’s roughly $70m “shareholder loan” to the mobile operator.

Mr Butler effectively described the deal as a ‘win-win’ for both Cable Bahamas and Aliv. While the latter will enjoy a more robust balance sheet, reduced debt and lower associated interest costs, he explained that Cable Bahamas’ cash flow should also benefit as the mobile operator starts to pay the “accrued interest” on that shareholder loan.

The refinancing deal, which was executed on October 31, 2023, after Cable Bahamas’ end-June financial year close, also reduces the fees paid by Aliv to its controlling shareholder for use of the latter’s facilities including towers and data centres. This, in turn, will cut the mobile operator’s operating expenses.

“On October 31, 2023, the company [Cable Bahamas] executed a deed of contribution whereby the company and HoldingCo in their capacity as shareholders of Aliv collectively agreed to contribute additional capital into Aliv and restructure its existing debt obligations to optimise its capital structure and enhance financial flexibility,” Cable Bahamas told shareholders in its annual report.

Detailing what it described as “key details”, it added: “The shareholders have committed to contribute up to $55.129m in additional capital pari passu (equal) to their current shareholdings”. This was to be accompanied by altered “terms and conditions” relating to Cable Bahamas’ shareholder loan, including “changes in interest rates, interest calculations and repayment schedules”.

Finally, the master services agreement (MSA) governing the relationship between Cable Bahamas and Aliv has also undergone changes. “Aliv purchases services from the company in the normal course of business including, but not limited to, the use of the company’s towers, transmission networks, services and data centres pursuant to the MSA.”

This “outlines all terms and conditions, including cost and pricing requirements. Amendments to certain MSA fees have been agreed and will result in a reduction in ongoing operating expenses for Aliv. Certain fee schedules will be retroactively affected by the rate changes”.

Cable Bahamas also disclosed that, just two days after agreement with the Government on Aliv’s refinancing was reached, principal and dividend payments were made on the group’s 8 percent Series I preference shares. These payments, made on November 2, 2023, were worth $14m and $2.823m, respectively, for a total $16.283m.

Mr Butler yesterday said the refinancing will boost investor confidence that Aliv is on “a good footing”, and enjoys the financial backing of its two main shareholders, as well as affirming the partnership between the Government and Cable Bahamas.

“As a part of the standard governance plan, there is a condition that the master services agreement (MSA) and its terms are renegotiated annually,” he explained. “We’ve renegotiated certain terms in the MSA as part of this. In addition to that, we agreed as partners to put in equity, or convert some of the debt to equity, to strengthen the structure and balance sheet of Aliv.

“We previously put $70m in as a shareholder loan to Aliv, and so we looked at those terms as well as part of the MSA terms. We looked at the interest rate on that loan again, and added additional equity to the business as well. It strengthens the balance sheet by converting debt to equity.”

Mr Butler did not have the dollar amount of debt that will be converted to equity at hand, but described this as “a pretty hefty number”. He added: “Fundamentally it strengthens the balance sheet of Aliv. It also gives the preference shareholders and bond holders confidence this company is on a good footing, reduces operational expenses and strengthens the business.

“Refinancing of the shareholder loan at a cheaper interest rate makes a big difference. All these things help set up Aliv for future success. Hopefully, as a condition of these terms, Cable Bahamas will be paid interest on this [shareholder] loan.”

Interest has been accruing on that $70m loan, and Mr Butler voiced optimism that the refinancing deal will also enable Aliv to start paying down this sum owed to Cable Bahamas as its controlling owner. “It improves Cable’s cash flow as well,” he added of the refinancing. “The Government made commitments to allow the amounts accrued with taxation to be converted to equity.

“Some of that will happen on a go forward basis. Aliv’s balance sheet remains solid, the business is doing well from a revenue and EBITDA (earnings before interest, taxation depreciation and amortisation) perspective, and the balance sheet structure strengthening means third party bondholders and preference shareholders will have confidence their interests are secure as well.

“Cable is in a good position assuming we can get this refinancing of Aliv off the ground. I think that will make a big difference to Cable’s balance sheet and future cash flow as well.” Mr Butler told Tribune Business back in October that Cable Bahamas was poised for “monumental improvement” in profits if it could reach agreement with the Government on refinancing Aliv’s debt at lower interest costs.

He added that this was “key” to the group’s 2024 financial year performance after Cable Bahamas incurred a $16.008m fourth quarter loss that wiped out profits generated during the first nine months of the year to end-June 2023. However, the company’s ordinary shareholders enjoyed a near-$5m profit for the full-year despite the overall $8.716m net loss.

That occurred because accounting rules require that Cable Bahamas consolidate the Government’s Aliv losses of $13.649m into the group’s overall results, which produced the net comprehensive loss of $8.716m - itself a 22.6 percent decline on the prior year’s $11.256m worth of ‘red ink’. Accounting write-downs, namely depreciation and amortisation, relating to the value of Aliv’s mobile network also impacted Cable Bahamas’ 2023 results.