NTL’s Debt Mountain Triggers Investor Jitters

19 July 2001

Britain’s largest cable operator, Nasdaq-quoted, US-owned NTL, is increasingly the cause of sweaty palms among investors and analysts.

In a sudden swing of market sentiment unrelated to any announcement or strategic change, NTL’s share price yesterday plummeted to around $5 – 38% down on Friday’s close and 85% below its recent high of $32.40. Currently NTL stock is worth less than 5% of its $109.10 zenith in January 2000.

Analyst Ted Barac at Moody's Investors Service summed-up the general unease: “We are concerned about the debt levels at NTL compared to the cash levels the company generates.” Debt currently stands at $17.4 billion, thirty-one times EBITDA (earnings before interest, tax, depreciation and amortization).

NTL chief executive Barclay Knapp is shortly expected to brief analysts and investors on capital expenditure requirements for 2003, and will report that the company is meeting operating performance targets, improving customer service and increasing average revenues per subscriber.

Until midsummer NTL (and its UK rival Telewest) were seen by the European junk bond market as bluechips. Indeed NTL was successful in placing a $1 billion convertible bond issue as recently as May.

But junk bonds have an alarming tendency to backfire: “The bond market has the capacity to destroy businesses,” warned Toby Nangle of Barings Asset Management. “Unless prices rebound it will be a crushing blow for the European cable industry.”

News source: Financial Times