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Disgruntled Solid Energy lender Bank of Tokyo Mitsubishi also among the Commerce Commission challenged Chorus' banks

Disgruntled Solid Energy lender Bank of Tokyo Mitsubishi also among the Commerce Commission challenged Chorus' banks
Security is not something Chorus' banks have. Image sourced from

The Bank of Tokyo Mitsubishi, which is taking legal action to try and block a rescue deal for Solid Energy that would effectively see it take a 20% haircut on its $80 million loan to the SOE, is also one of four banks with more than $1 billion worth of unsecured loans to telecoms infrastructure provider Chorus.

Bank lenders that are part of the Chorus lending syndicate include the Bank of Tokyo Mitsubishi, ASB's parent Commonwealth Bank of Australia, HSBC and Westpac Banking Group. Their loans are not secured against any assets.

According to Chorus' most recent annual report, the company had a $1.35 billion syndicated bank facility of which $155 million was undrawn at June 30. On August 2 Chorus announced it had obtained a new $250 million bank facility, which is from the same banks.

Communications and Information Technology Minister Amy Adams announced today she has instructed government officials to commission an independent assessment of Chorus' financial position and its capability to meet its contractual commitments under government Ultra-Fast Broadband and Rural Broadband Initiatives.

This comes after Prime Minister John Key said on Tuesday his government was considering all its options in response to Chorus' warning it may default on its debt and restrict its rollout of the Government's Ultra Fast Broadband network after the Commerce Commission ruled Chorus should cut its wholesale copper broadband price by 23%.

Key agreed options included government intervention to over-rule the Commerce Commission decision, a government loan to Chorus or the Government taking an equity stake in Chorus.

As reported last month lawyers representing Bank of Tokyo Mitsubishi are due in court this month to argue a potentially life saving debt restructure agreed to by Solid Energy's other key lenders is being conducted under a piece of law not intended to apply to such a complex restructuring.

The Bank of Tokyo-Mitsubishi's outstanding debt is, like that of Solid Energy's other bank lenders, unsecured. Solid Energy's total bank loans are valued at $300.5 million.

Moody's, S&P watching

Aside from its bank debt, Chorus also has about £260 million worth of bonds on issue. Credit rating agency Moody's Investors Service yesterday said it had put its Chorus Baa2 issuer and senior unsecured ratings and (P)Baa2 medium term notes programme ratings on review for possible downgrade. And Standard & Poor's said its BBB long-term rating on Chorus had been placed on creditwatch with negative implications. See credit ratings explained here.

"If the (Commerce Commission) determination is implemented without amendment, and Chorus does not undertake material offsetting credit-supportive actions, it is likely that the credit rating on the group will be lowered by at least one notch," Standard & Poor's credit analyst Paul Draffin said.

"Our forecasts indicate that the determination, if implemented without amendment, will result in Chorus' financial metrics falling outside expectations for the current rating from fiscal year ending June 30, 2015. Furthermore, without offsetting credit-supportive actions, the group will likely also breach covenants under its debt facilities from fiscal 2015."

"Importantly however, the determination is still to be fully assessed by various key stakeholders, including the NZ government, and can be appealed by Chorus. Accordingly, the determination may be subject to change between now and the time it is scheduled to commence in December 2014," Draffin added.

Moody's vice president and senior analyst Maurice O'Connell said the rating review reflects the material impact the regulatory decision will have on Chorus' financial profile, with annual earnings before interest, tax, depreciation and amortisation potentially dropping by $142 million, or around 20%, from the 2015 financial year.

"This would represent a significantly weaker position relative to rating expectation, O'Connell said. "The outcome of the rating review would depend on what measures, if any, Chorus would implement to counter the negative financial impact of the decision."

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Keep it simple.  No Social Welfare for big corporations.

Not even if they're " too big to fail "  ..... or it's deemed to be a key industry .... in the nation's best interest ....
... or keeping a board seat warm for any " accommodating " politician who may find himself short of a sinecure after next year's election ?

Especially if ....
If you can think of instances where it might be in the nation's rather than special interest groups best interests I will be happy to consider an exception.

..... oooooooh , I doubt very much that your suggestion will meet with a chorus of approval .....

I see Chorus shareholders are attempting to blackmail the government into a bailout just as the holders of US Treasuries did to the Fed when it gave consideration to a QE taper.

Yes Colin.  We do want our copper phone lines to continue working and have broadband in the future.  Essential.   But the first to pay the piper should still be the shareholders.  They should be first in the queue to take the hit.
In the worst case they simply go broke - disappear - and we (govt) have to retrieve what we can, as best we can.  And it might cost.  ooch.

Have not Chorus directors and bankers read their own NZX release (from above)
2 August 2013
Chorus enters new $250m bank facility
Chorus has today entered into an agreement for a new $250 million bank facility which, subject to standard conditions, will be used to pay down drawings under its existing bank facility.
Chorus’ existing syndicated bank facility comprises two equal tranches of $675 million, due to mature in November 2015 and November 2017 respectively. The new facility extends Chorus’ debt maturity profile with a 2019 maturity date.
Chorus CFO Andrew Carroll said Chorus was pleased to have secured the funding through to 2019 on substantially the same financial terms.
“We appreciate the support of the small group of banking partners who put the facility in place despite the ongoing uncertainty we are experiencing in the current regulatory environment.
“As well as enabling us to extend our debt maturity profile, the new facility will provide additional financial flexibility as Chorus continues to invest heavily in New Zealand’s fibre future through the UFB rollout,” he said.
For further information:
Ian Bonnar
Corporate Affairs Manager
Phone: +64 9 358 6061
Mobile: +64 (27) 215 7564
Brett Jackson
Investor Relations Manager
Phone: +64 4 498 9271
Mobile: +64 (27) 488 7808
So the CFO was thinking about things............................
5 November 2013
Regulatory black hole puts Chorus funding at risk
The Commerce Commission has today released its final decision on the pricing for Chorus' copper broadband (UBA) service.
The Commission’s final benchmarked UBA price of $10.92 is around a 50% reduction from the current $21.46 monthly charge. This means that the $44.98 per month Chorus currently charges retail service providers for a copper line and copper broadband service would reduce to $34.44
Chorus will not be providing any additional comment at this stage.
For further information:
Ian Bonnar
Corporate Affairs Manager
Phone: +64 9 358 6061
Mobile: +64 (27) 215 7564
Brett Jackson
Investor Relations Manager
Mobile: +64 (27) 488 7808
now go to page Chorus Annual Report: Page 4:
On 3 December 2012, the Commerce Commission (Commission) released two decisions:
• The final benchmarked Unbundled Copper Local Loop (UCLL) decision reduced the price by 3.8% to $23.52 per month. Chorus and retail service providers have applied for a ‘final pricing principle’ review of the decision.
• The draft benchmarked Unbundled Bitstream Access (UBA) decision proposed a reduction in price of around 60% from $21.46 to $8.93 per month.
Q: What will Ian and Brett do next, and what of the CFO?

Q: What will Ian and Brett do next, and what of the CFO?
More importantly others have picked up the ball and are running with it.
This morning CallPlus asked the High Court at Wellington to declare illegal a discussion document that Adams issued in August canvassing legislation that would let the Government fix the price of copper broadband. Read more

If it fails though its assets are bought at cents on the dollar, banks (shareholders?) take a big haircut and the chorus2 continues rolling out UFB.
Its got a debt of 1 billion+ personally I wonder how it would trade out of such a big debt? Its only because users are being over-charged that its still floating?
I'd like to see some opinions of the impact of a bankruptcy.

Good luck with that KH. Corporate welfare is the main driver of democracy and has been for a long time.  Best treatise on it I've read is in J.K Galbraiths "Age of Uncertainty". A great read and still relevant after over 30 years.

Thanks ST.  Will do.

I'm curious to know why Chorus has so much debt..???
I thought it was split off from Telecom..????
Wouldn't one think it would have been done in a prudent way..???

Roelof you might ask that question of every corporation, government etc - it's cheap to borrow to pay dividends etc, etc. And all the foreign owned competitors operate on thin capitalisation debt models and are apparently allowed to do so by the authorities.

Control Fraud, Bad behaviour forcing out good. Sociopathic behaviour, Very low capitalisation is a product of these trends. The fact that we allow an essential  utility to now be structured in the same way  as a hedge fund speaks volumes about what is now required. Massive leverage is of course possible in this case because of the real value of the underlying assets. Leverage  keeps the share price up. Of course is this really how we want our important utilities to be structured and managed is another story.

As a biased shareholder, I am bemused at the way both main political parties alter or give notice to alter the basis on which original decisions to invest were made.  How the hell does the Chorus CEO cope with the mad rush of blood to the minds of pollies.  Leave things be and let the market sort it out.  If conditions don't allow survival of the companythen it should be alllowed to fail.  The political decisions being made will have to be accounted for at the next election.

The broadband review has been underway for all of Chorus's existence. It was signalled in legislation before Chorus existed. For most of the review period it looked like the outcome was going to be much worse for Chorus than it was. You may feel it was reasonable to be beyond the CEO's abilities to plan for. I would disagree.

Agree. They took a commercial gamble and maybe they lost (Their armageddon scenario has yet to be verified). What do free marketers call it? Discipline of the market? Shareholders should be after the CEO and CFO not the Commerce Commission.

As one of the Mum & Dad investors who responded to the call by Labour to Invest in NZ, I took the advice of one of those "Private Banking Experts" and established a portfolio.  At that time Telecoms was the number one share to have. it was $9.60.  Since then the Pollies (Labour Leader) dismantelled Telecoms into 3 parts.  Their subsequent policies have been effective in the destruction of the communications area, for what result.  Chorus must succeed else we will all be so much poorer.  I now ask if my family home is safe from the predations of the loony left Labour with their Capital gains tax, 39 % plus tax on the successful.  Is there one person who has any Economic training in Labour?

.. I bailed out of Telecon @ $ 7.47 .... soon after the Americans sold their stake ... gotta follow the " smart money " ...
And in all fairness , a succession of 3 incompetent CEOs did not help the firm ...
.. their worst sin really was attempting to maintain their monopolistic position  ... had they been forward thinking , and worked with the gumnut instead of opposing it , they could've kept a larger revenue ( albeit a smaller telecommunications industry % ) of a growing pie ...

Anyone heard of the stone age , or the iron age or the copper age ?
Does anyone remember the Auckland Gas Company which ran the street lights ?
Its called TECHNOLOGICAL  CHANGE .and Chorus shareholders are in for a shock , here's why :

  • In the 1800's steam or coal burning  rail was the transport of choice . Now rail is out and the Car or aeroplane are in.
  • Steam ships were in and now its diesel
  • Gas street lighting was in and now its electric  lighting
  • Paper Mail letters are out , e-mail is in .
  • Analogue TV is out , digital TV  is in
  • Landline telepohones are out , I -Phones or smart phones are in
  • IBM Golf typewriters are out , Laptop  Computers are in

Its the 2000's and Copper wire is out, and optic fibre is the new thing.
Chorus which owns the copper wire is dinosauroros Rex ....its out , its in permannent decline 

Oil age? like the coal age its ending, we are all in for a shock, some more than others.
Aeroplanes will be gone except "clipper", only for the most wealthy...

Boatman elucidates some truth, and some missing-the-point.
Yes, technology moves on, and the holders of the past one(s) are left attempting more efficiency in the face of something better. Usually they lose. That's while supply of things is happening. When supply starts to get a bit compromised - be it volume/time or dimishing quality - sometimes the high-tech can't be maintained.
He makes the classic mistake of mixing up resource-ages with energy ages. Seen it so many times, I just laugh now. Heard if trom a double-graduate ex-mayor, you just gotta wonder...
Some technology will be worth keeping, but some will be a bridge-too-far, and we can look to the past to see what might happen beyond the high-water-mark. As Steven points out, planes will be out, but I suggest ships will stay. Have to stop it there - I'm on a land-line.....

"Bank lenders that are part of the Chorus lending syndicate include the Bank of Tokyo Mitsubishi, ASB's parent Commonwealth Bank of Australia, HSBC and Westpac Banking Group. Their loans are not secured against any assets."
These banks lent more than $1 billion dollars to a company whose sole business the maintenance of phone lines, and largely consists of the UFB contracts? Without taking any security at all? Hell, if I had any shares in the banks I'd be looking at selling them.

I'd love to know what interest rate Chorus is paying on those unsecured loans..??

Significantly more than the unsecured bank depositors receive in return for supplying such funding to the banking system..

Best guess from the annual report: say 6.1% to 6.7% ($104m over adjusted for FYE 13 undrawn $1,697m - $155m)
could be a little more if you note undrawn FYE12...
Equity is shown as 18.7% of total asests...
The year end figure for debt was 1,697 million.
Interest cost noted as 114 million (+1 is notional)
Syn Loan: $ 58 million
EMTN: $ 46 million
The amount of undrawn syndicated bank facility that is available for future operating activities is $155 million (30 June 2012: $245 million).
Balance sheets show equity at: $ 624 million
Balance Sheet shows Liabilities at: $ 2,709 million
Balance Sheet shows Total Assets at: $ 3,333 million
Crown funding is shown as a liability ($ 222 million of thw $ 2,709 million).

Nice work thanks. A tasty 4% odd margin on the interbank rate, but still quite a bit cheaper than they'll lend unsecured to you and me then....