TelstraClear says has refinanced $600m loan

By NZPA

Monday 19th August 2002

TelstraClear said today it had refinanced $600 million of loans which are vital to its survival.

Chief executive Rosemary Howard told National Radio from Australia today the company had found a new source of funding for the next five years -- its 62 percent Australian owner, Telstra Corp.

"We have actually chosen to go with a loan from Telstra for this debt refinancing and it was just last week that the TelstraClear board approved that as the better option against other options that they were reviewing," Mrs Howard said.

She said it would allow the company to leverage off Telstra's credit rating. Telstra had been the only major telco in the world in the past couple of years to have received a credit upgrade, she said.

"Because of that, it is on favourable terms to TelstraClear and enables us to save on some bank fees and certainly enables us to remove the 'fundamental uncertainty clause' which had been referred to by the auditors in the financials," she said.

Mrs Howard said the only uncertainty for TelstraClear had been which source of finance the company tapped into.

The company, formed through the $435 million merger of TelstraSaturn and Clear Communications, originally faced a deadline of June 12 to repay $510 million of the $600 million loan facility borrowed from a syndicate of banks to extend its network.

A three-month extension has given TelstraClear until September 12, and the company has indicated it is seeking to refinance the full $600 million loan at that time.

There had been speculation that TelstraClear may have had difficulty borrowing because of the state of its books.

It sank deeper into the red last year with a loss of $288 million, including a restructuring charge of $56.5 million and writedowns totalling more than $50 million.

Analysts expected TelstraClear to refinance with the help of parent Telstra, which has good access to capital, owing to its high credit rating.

But TelstraClear's accounts for last year, released to the Companies Office last month, showed a great deal of uncertainty about the future.

By March, shareholders Telstra and 38 percent-owned Austar had not pledged their financial support should TelstraClear be unable to renew its loan facility.

That set alarm bells ringing at TelstraClear auditor Ernst & Young, which said the company had a "deficiency of working capital" and needed to secure more finance to keep trading.

"The group has $510 million of financing falling due on June 12, 2002, for which future financing will be required. This condition raises substantial doubt about the group's ability to continue as a going concern," an Ernst & Young report prepared in March read.

When TelstraSaturn and Clear Communications merged last November, Mrs Howard said she expected the new company to be profitable in two to three years -- a limit she is still committed to.

"We've turned the corner in terms of being ebitda (earnings before interest, tax, depreciation and amortisation) positive. Six months of restructuring and downsizing has finished. Now we're waiting on the interconnect and wholesale determinations."

TelstraClear went to the Commerce Commission in May asking it to set the prices it pays to connect to Telecom's network and buy wholesale services.

Commission spokeswoman Jackie Maitland said a draft determination on interconnection would be issued to Telecom and TelstraClear this week, with another opportunity for submissions after that. A final determination is expected in mid- to late September.

Better terms on pricing would give TelstraClear the foothold it needed to make inroads against Telecom, but analysts said the business case for TelstraClear being in the market at all was marginal.

A Deutsche Bank report written just after the Clear acquisition said TelstraClear would remain unprofitable for years.

"The combined TelstraSaturn business is expected to continue to generate an average loss of $180 million per annum over the next few years.

"While we believe that there is potentially an exciting opportunity for Telstra in developing Clear, we are sceptical that TelstraSaturn's residential telephony and cable will ever earn its cost of capital," the report read.

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