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Founder Sir Charles Dunstone prepares to bail out TalkTalk

Sir Charles Dunstone
Sir Charles Dunstone delisted TalkTalk from the stock exchange three years ago - Chris Jackson/Getty Images

TalkTalk founder Sir Charles Dunstone is preparing to inject fresh funding into the debt-laden broadband provider, as looming repayment deadlines stoke fears over its future.

Sir Charles and TalkTalk’s other main shareholders have offered to inject £150m into the company to stave off a potential debt crisis, sources said.

The company’s lenders are pressing Sir Charles and TalkTalk’s other main shareholders, led by private equity house Toscafund, to stump up cash to unlock a rescue deal.

Banks behind TalkTalk’s £330m revolving credit facility – effectively a corporate overdraft – are understood to be seeking to reduce their exposure to as little as £150m when it comes due for refinancing in November.

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That would require Sir Charles and his fellow shareholders to provide £180m in new equity. Negotiations between the two sides are ongoing.

Last year some of TalkTalk’s banks chose to protect themselves from a potential financial crunch by selling debt on to less traditional lenders at a 25pc discount, City sources said.

TalkTalk, which has 3.8 million broadband customers and is Britain’s fourth-largest provider, has been labouring under heavy debts for many years.

Sir Charles and Toscafund delisted the business from the stock exchange three years ago by loading it with more borrowing, much of which is now coming due.

Fears over TalkTalk’s future have provided the backdrop to discussions led by the industry regulator Ofcom over a “supplier of last resort” regime to ensure households and businesses stay connected.

The company faces two large repayments totalling more than £1bn in the coming months: the £330m revolving credit facility later this year and £685m of bonds that fall due in February next year. TalkTalk warned in its accounts last year that the deadlines “may cast significant doubt” over its future.

It has been scrambling to raise funds and reduce its costs as Sir Charles and Toscafund boss Martin Hughes, nicknamed “the Rottweiler” in City circles, battle to retain control.

Toscafund's Martin Hughes
Martin Hughes' Toscafund has been central to TalkTalk's delisting and its subsequent battle to cut costs

TalkTalk is currently attempting to raise £450m from the sale of a large stake in its wholesale arm to Australian investment giant Macquarie.

The proceeds from any disposal have been earmarked to help pay off some of the debt pile and avert a default.

Analysts have previously raised concerns about the value of the wholesale division, pointing out that it was largely dependent on TalkTalk’s own consumer business, which has been losing market share in the shift to full-fibre broadband.

The company’s losses more than doubled last year to £70m and the costs of servicing its debts jumped 35pc to £106m on the back of soaring interest rates.

Senior industry sources said that the alternative to the sale of the wholesale arm and an equity injection was a debt-for-equity swap in which lenders would take control. The private credit fund Ares Management is also exposed to TalkTalk debt and has called in restructuring specialists to advise on its options.

The fraught discussions threaten a rare setback for Sir Charles, a serial entrepreneur whose fortune was once estimated at £1bn largely from the sale of part of his stake in Carphone Warehouse when it merged with Dixons a decade ago. He is also a major investor in the British offshoot of the American burger chain Five Guys.

When Sir Charles teamed up with Toscafund, they tapped private credit fund Ares Management for hundreds of millions of pounds in high-risk financing that resulted in Ares becoming a major shareholder in TalkTalk, according to Companies House filings.

Though the so-called payment-in-kind loan isn’t due to be repaid until 2026, the interest has been accruing at an eye-watering annual compound rate of 13pc, which has pushed the amount owed up from £290m in 2022 to £380m in 2023 alone, according to the financial information service Debtwire.

In January, the credit ratings agency Fitch downgraded TalkTalk another notch to CCC, meaning a default is considered “a real possibility”.

Attempts to sell the wholesale arm are part of a broader break-up plan. In September, a syndicate of the group’s existing shareholders bought its business unit for £95m, and its consumer arm is also expected to be put up for sale. Management have also cut sales and marketing spend by 40pc in a bid to rein in costs.

TalkTalk declined to comment.