Ares Management Corp is set to lose about half of the hundreds of millions of pounds it invested in TalkTalk, after BT Group Plc agreed to buy the telecommunications firm out of insolvency. The US asset manager received compensation of around £100 million in exchange for giving up its security over the company and consenting to BT’s purchase, according to people familiar with the matter. Combined with interest and other repayments received over the years, that means Ares is set to recover around 50% of the cash it invested in the business, one of the people said.
The recovery of a “substantial portion” of the principal invested reflects “the strength of our structured contractual rights and the quality of our portfolio management capabilities,” a spokesperson for Ares said in an emailed statement to Bloomberg News. But this amount is only a part of what Ares has invested in TalkTalk over the years, and an even smaller share of what it would have been owed had the investment performed as expected. In fact, when taking account accrued interest, Ares’ exposure to TalkTalk was in the region of £1 billion, according to filings and Bloomberg calculations.
The LA-based firm took a £50 million minority stake in early 2021, as part of a buyout led by private equity firms Toscafund Asset Management and Penta Capital, and backed by TalkTalk’s founder Charles Dunstone. Since then it has injected funds across the capital structure, becoming a creditor at both senior and junior levels as well as a shareholder. The investment was spread across various vehicles managed by Ares. Notably, the financing also included a payment-in-kind facility to one of TalkTalk’s holding companies to help fund the take-private, according to filings.
So-called PIK features allow the borrower to pay interest with extra debt, rather than cash. As a result, the amount due to Ares — net of earlier repayments — has ballooned to over £600 million since, according to filings and Bloomberg calculations. As that debt sits further away from the assets, it ranks junior to the amount owed at the operating level, meaning it has lower repayment priority. A spokesperson for BT declined to comment.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing