The London-listed satellite company Avanti Communications will take a big step towards shrinking its mammoth debts on Wednesday when it unveils plans to hand bondholders a $550m equity stake.
Sky News has learnt that Avanti, which is one of a number of stock market-quoted businesses wrestling with a glut of new satellite capacity, is to announce proposals for a big debt-for-equity swap.
The deal will see hedge funds such as Mast Capital Management and Solus Alternative Asset Management becoming bigger shareholders in the AIM-listed company.
Crucially, it will also slash the interest bill payable by Avanti by tens of millions of dollars annually, freeing up capital to invest in the business, one fund close to the company said.
Mast, Solus and Tennenbaum Capital Partners, another bondholder, all have seats on the board of Avanti, which sells satellite data services to telecommunications providers.
Among the contracts it has won this year were a mandate from the European Regional Development Fund to provide fast broadband to small businesses in Cornwall and another to provide satellite broadband services to 500 schools in Kenya.
Under the plans to be announced on Wednesday, existing equity investors would be left with a stake of just 7.5% in Avanti once the debt-for-equity swap is concluded.
However, they would also be left as the part-owners of a business with a more viable financial future, with well over half of its borrowings being eliminated.
City insiders said the debt being swapped would convert to roughly $150m of equity because of the steep discount at which the debt has been trading.
Avanti’s annual interest bill will be cut from about $170m to approximately $40m, they added.
It was unclear on Tuesday evening whether all of Avanti’s major bondholders had consented to the restructuring.
If completed, the debt revamp will pave the way for the appointment of a new chief executive to replace David Williams, who left earlier this year.
Concerns about Avanti’s enormous indebtedness have hampered the company’s strategic ambitions for years.
It has a stock market value of just £10m, having seen its shares slump like those of larger rivals such as Inmarsat – with which it held brief takeover talks last year.
Avanti is chaired by Paul Walsh, the former boss of FTSE-100 drinks giant Diageo and now chairman of Compass Group, the caterer.
Sources said the debt-for-equity exchange was a coup for Mr Walsh, and said it was likely to be followed by a further equity raise in the coming months.
Some of the company’s other borrowings would be restructured to reduce the coupon paid on them.
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Cenkos Securities and Jefferies, the investment banks, are working on the overhaul of Avanti’s capital structure.
A spokesman for Avanti declined to comment.