co:888193.1co:888193.1 allen & overy financing telecom companies: the european angle and...

Co:888193.1Co:888193.1Co:888193.1Co:888193.1 ALLEN & ALLEN & OVERYOVERY

Financing telecom companies: the European

angle and experience Laurence Jacobs

Allen & Overy

29th October, 2001

[email protected]


Introduction - Allen & Overy

Global practice - 24 offices 400 partners worldwide - finance,

corporate, capital markets 200+ CMT lawyers worldwide



Leading “telecom finance” practice

In 2000, advised on £100bn + telecom finance deals

3G bids (Wind, Mobilcom, Telefonica, Telecom Italia, Hutchison, Deutsche Telecom, One2One)



Investment grade deals (Vodafone - Mannessman, Racal - Global Crossing, KPN Finacings)

Vendor financing


Introduction - key issues in European telecom finance

3G licensing

Impact of licence fees

Debt finance and taking security

Vendor financing

Managing the risk

New structures


Country Licence Issued Licensing Process No. of Licences Total Price

UK April 2000 Auction 538.475 bn

Germany August 2000 Auction 6 50.8 bn

France July 2001 Beauty contest and 4 (only 2 out of 4 9.8 bn + admin fees

payment successfully issuedat first attempt)2

1. First 3G licences issued

2. Only 2 operators bid in the initial beauty contest. The French government are currently attempting to issue the remaining licences

3G Licensing - licence fees


3G Licensing - costs

Average price per person, in euros

652620

361

270

242

170

0

100

200

300

400

500

600

700

%

UK Germany Spain* France** Italy Netherlands


3G Licensing - debt burden

Debt of the major European telecoms companies

bn

19

61

39

56

14

48

20

27

5

22

9

19

0

10

20

30

40

50

60

70

FranceTelecom

DeutscheTelekom

BT Telefonica KPN Telecom Italia

Dec. 1999

Dec. 2000

Source: Standard & Poor's


3G Licensing - rollout requirements

Licence requirements

UK 80% coverage by 2007

Germany 30% coverage by 2003; 50% coverage by 2005


3G Licensing - debt finance

Limited recourse finance

Taking security over 3G licences

Sponsor support/guarantee

corporate security


3G Licensing - costs/debt control

Disposal of non strategic assets

Outsourcing

Securitisation

Infrastructure sharing


Vendor finance - growth in the vendor finance

market win sales

competitive pressure

develop customer relationships

open new markets

to make money from finance


Vendor finance - structures for vendor finance

unsecured extended payment terms

medium term finance (loan) operating lease finance lease vendor supported third party

finance


Structures for Vendor Finance

(A) Unsecured extended payment terms

Supply

Supplier Finance Supplier

Customer

Deferred Payment


Structures for Vendor Finance (cont'd)

(B) Medium term finance (loan)

Supply

Supplier Finance Supplier

Customer

Payment

Security?Loan



(C) Operating lease

Payment

Periodic rentals

Supplier Finance

Supplier

Customer

Operating lease

Supply



(D) Finance lease

Payment

Lease rentals (amortise purchase price)

Supplier Finance

Supplier

Customer

finance lease

Supply



(E) Vendor supported third party finance

Purchase Price

Supplier Finance

Supplier

Customer

Supply

Bank

Counter indemnity

Security?

Loan

Guarantee


Vendor finance - commercial issues

credit exposure intercreditor issues customer relationship costs tax and accounting


Vendor finance - legal issues

regulatory compliance due diligence security conflict between role of

supplier and lender


Vendor Finance - pay as you grow

Capacity based PAYG Utilisation based PAYG


Conclusion

Financiers

challenge the business model

focus on security

Operators and manufacturers

challenge the business model

cost management

co:888193.1co:888193.1 allen & overy financing telecom companies: the european angle and...

Documents

allen overy structures

party finance slide

vendor finance contd

european telecom finance

telecom finance deals

loan slide

payg slide

accounting slide