Tele Columbus AG
| Jurisdiction | England & Wales |
| Judge | Mr Justice Hildyard |
| Judgment Date | 01 February 2024 |
| Neutral Citation | [2024] EWHC 181 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CR-2024-000187 |
[2024] EWHC 181 (Ch)
THE HONOURABLE Mr Justice Hildyard
Case No: CR-2024-000187
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
7 Rolls Building
Fetter Lane, London,
EC4A 1NL
Tom Smith KC and Adam Al-Attar (instructed by Freshfields LLP) for the Applicant (Tele Columbus AG)
Hearing date: 17 th of January 2024
APPROVED JUDGMENT
Remote hand-down: This judgment was handed down remotely at 10:30 on 1 st of February 2024 by circulation to the parties or their representatives by email and by release to The National Archives.
Scope of this judgment
At a hearing on 17 February 2024 I determined that I should accede to an application seeking an order convening a single meeting of creditors of a company called Tele Columbus AG (the Company) to consider and, if thought fit, approve a scheme of arrangement (the Scheme) proposed by the Company pursuant to Part 26 of the Companies Act 2006 ( CA 2006). I provided short reasons for that determination orally but indicated that I would elaborate these reasons in writing, as I now do.
The Company and background to the Scheme
The Scheme itself is relatively straightforward. However, a less commonplace feature is that the Company not only is a public company incorporated and having its centre of main interest (COMI) in Germany, but it also has no business or presence in this jurisdiction. The Tele Columbus group (which comprises of the Company and its direct and indirect subsidiaries) (the Group) is a leading fibre-optic network operator in Germany, headquartered in Berlin.
The Company is majority owned by Kublai GmbH ( Kublai) (95.39%). Kublai GmbH is ultimately owned by Morgan Stanley Infrastructure Partners Inc. (“MSI”) (60%) and United Internet Investment Holding AG & Co. KG ( United Internet) (40%). Shares in the Company were de-listed from the Frankfurt Stock Exchange in September 2021. A minority share of 4.61% of the Company remains in free float.
The Company's primary activity is holding the shares in its subsidiary companies including (directly and indirectly) the operational subsidiaries of the Group. It is the central financing vehicle within the Group.
Its primary financial liabilities comprise:
(1) the €650 million senior secured notes (formerly New York law governed, but now English law governed) issued pursuant to the indenture dated 4 May 2018 by the Company, as issuer (the Notes or SSNs); and
(2) the €1.38 billion senior facilities agreement (English law governed) originally dated 2 January 2015 (as amended from time to time) between the Company, as borrower, and the lenders thereunder (the SFA), of which c.€462 million is outstanding.
The SSNs and SFA debts are subject to the intercreditor agreement originally dated 30 July 2015 between, among others, the Company, Kroll Agency Services Limited as Senior Facilities Agreement Agent and Deutsche Trustee Company Limited as Trustee (each as defined therein) (the Intercreditor Agreement).
A pledge has been granted in favour of the Lenders and Noteholders over the shares (or partnership interests, as applicable) of the Group entities shown in the chart annexed to the draft explanatory statement. That chart also shows the Group entities that are guarantors of the debts owed under the SSNs and SFA.
Both the Notes and the SFA are nearing maturity. The outstanding liabilities under the SFA mature on 15 October 2024, and the Notes are due on 2 May 2025.
The Group has been facing certain short-term liquidity challenges. Based on the latest available cash flow forecasts the Company will have sufficient liquidity until mid-March 2024. But it will by then urgently need further funding. Whilst its shareholders, having extended considerable lending in the past (so that approximately €65 million has been funded under the Shareholder Loans, €15 million under the shareholder loan dated 25 July 2023 and €50 million under the shareholder loan dated 30 August 2023), might be expected to make available further shareholder loans, there can be no certainty of sufficient further funding.
Furthermore, the Group faces certain commercial challenges due to a changing regulatory landscape:
(1) New legislation. From July 2024, housing associations will not be allowed to charge cable fees through an additional payment obligation on tenants due to the abolishment of ‘bulk contracts’. However, it will still be possible to offer cable TV as an ancillary cost (with the consent of the residents).
(2) The expiry of key contracts. Of the Group's top 20 housing association contracts a share equal to 61% of households is expiring by 2027, which threatens to open up the housing association base to competition.
Over the medium to long term, the Group requires further equity investment to support the delivery of its business plan to ensure it can successfully tackle these funding and commercial challenges.
Thus, in order to meet its funding needs and the business challenges described above:
(1) The Company proposes to extend the maturity of each of the SFA and the Notes along with making certain amendments to the terms of each relevant finance document.
(2) In addition, Kublai (funded by Hilbert (as defined below) or certain of Hilbert's Affiliates) propose to make a substantial capital contribution of €300 million (including the principal of the shareholder loans already disbursed in 2023).
These inter-conditional components comprise the Transaction.
Purpose of the Scheme
The purpose of the Scheme is to enable the Transaction. In broad summary, the Scheme comprises an extension of maturity of the SFA and the Notes along with amendments to the terms of each finance document.
Ordinary course trade creditors of the Company (and the Group) will not be impacted by the Scheme, as the ongoing supply of the Group's trade creditors is critical to the continuity of the business of the Group.
The Scheme will also not affect the shareholder loan agreements originally dated 25 July 2023 and 30 August 2023 entered into between the Company as borrower and Hilbert Management GmbH, an affiliate of Morgan Stanley Infrastructure Partners Inc. ( MSI), ( Hilbert) as lender, pursuant to which up to €97 million has been committed to provide further funding to the Group (the Shareholder Loans).
Conditional on the Equity Commitment (as defined below), pursuant to the Scheme the Company proposes to:
(1) amend the SFA in its entirety (the Amended SFA), on inter alia the following terms:
(a) to extend the maturity date to 1 January 2029;
(b) to increase the interest under the Amended SFA to EURIBOR (subject to a floor of 6%) plus a margin of 4% p.a. (including a minimum cash pay of 50 bps) (not to be exceeded), which subject to a floor of 8.00% p.a., shall be reduced by 0.5% p.a. for every €25,000,000 of equity contribution provided in addition to the Equity Commitment (i.e. after the Equity Commitment is satisfied in full) and if not applied for purposes of building capacity to incur super senior Indebtedness under the credit facility basket or the contribution debt basket; and
(c) to apply an exit fee of 2.5% payable after three years from the Transaction Effective Date, increasing to 4.0% four years from the Transaction Effective Date, payable on an Exit Event (as defined in the Term Sheet which includes refinancing, mandatory or voluntary prepayment, change of control, and sale of substantially all assets);
(d) to tighten the baskets and permissions in line with the covenants incorporated from the Amended Notes (as further set out in paragraph (c) below) and to add certain additional events of default,
(2) amend the Indenture and the Notes (the Amended Notes), with inter alia the following terms to be set out in the indenture governing the Amended Notes (the Amended Indenture):
(a) to extend the maturity date to 1 January 2029;
(b) to increase the interest under the Amended Notes to 10.00% p.a. (payable in kind) subject to a floor of 8.00% p.a., to be reduced by 0.5% p.a. for every €25,000,000 of equity contribution provided in addition to the Equity Commitment (i.e. after the Equity Commitment is satisfied in full) and if not applied for purposes of building capacity to incur super senior Indebtedness under the credit facility basket or the contribution debt basket;
(c) to apply an exit fee of 2.5% payable after three years from the Transaction Effective Date, increasing to 4.0% four years from the Transaction Effective Date, payable on an Exit Event (as defined in the Term Sheet which includes refinancing, mandatory or voluntary prepayment, change of control, and sale of substantially all assets);
(d) to tighten the baskets and permissions under the Amended Notes as compared to the Notes and to add certain additional events of default,
(3) replace the covenants under the SFA with the covenants under the Amended Indenture (as defined below) and include the following new covenants which will apply to both the Amended SFA and the Amended Notes:
(a) the following minimum liquidity covenants:
(i) a first covenant set at a minimum liquidity threshold of €35 million, a breach of which will result in additional reporting obligation to the New Noteholders and lenders under the Amended SFA; and
(ii) a second covenant set at a minimum liquidity threshold of €20 million, a breach of which will result in an event of default under the Amended Indenture and Amended SFA, respectively,
in each case, compliance will be measured by monthly forward and backward-looking liquidity tests and a 13-week forward-looking cash flow forecast (based primarily on cash, cash equivalents and other available liquidity headroom measurements) and will be subject to...
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