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Financing telecom companies: the European angle and experience

Financing telecom companies: the European angle and experience. Laurence Jacobs Allen & Overy 29th October, 2001 laurence.jacobs@allenovery.com. Introduction - Allen & Overy. Global practice - 24 offices 400 partners worldwide - finance, corporate, capital markets 200+ CMT lawyers worldwide.

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Financing telecom companies: the European angle and experience

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  1. Financing telecom companies: the European angle and experience Laurence JacobsAllen & Overy 29th October, 2001 laurence.jacobs@allenovery.com

  2. Introduction - Allen & Overy • Global practice - 24 offices • 400 partners worldwide - finance, corporate, capital markets • 200+ CMT lawyers worldwide

  3. Introduction - Allen & Overy • Leading “telecom finance” practice • In 2000, advised on £100bn + telecom finance deals • 3G bids (Wind, Mobilcom, Telefonica, Telecom Italia, Hutchison, Deutsche Telecom, One2One)

  4. Introduction - Allen & Overy • Investment grade deals (Vodafone - Mannessman, Racal - Global Crossing, KPN Finacings) • Vendor financing

  5. 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

  6. 3G Licensing - licence fees Country Licence Issued Licensing Process No. of Licences Total Price UK April 2000 Auction 5 38.475 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 issued at 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

  7. 3G Licensing - costs Average price per person, in euros

  8. 3G Licensing - debt burden Debt of the major European telecoms companies bn Source: Standard & Poor's

  9. 3G Licensing - rollout requirements • Licence requirements • UK 80% coverage by 2007 • Germany 30% coverage by 2003; 50% coverage by 2005

  10. 3G Licensing - debt finance • Limited recourse finance • Taking security over 3G licences • Sponsor support/guarantee • corporate security

  11. 3G Licensing - costs/debt control • Disposal of non strategic assets • Outsourcing • Securitisation • Infrastructure sharing

  12. Vendor finance - growth in the vendor finance market • win sales • competitive pressure • develop customer relationships • open new markets • to make money from finance

  13. Vendor finance - structures for vendor finance • unsecured extended payment terms • medium term finance (loan) • operating lease • finance lease • vendor supported third party finance

  14. Structures for Vendor Finance (A) Unsecured extended payment terms Supplier Finance Supplier Deferred Payment Supply Customer

  15. Structures for Vendor Finance (cont'd) (B) Medium term finance (loan) Supplier Finance Supplier Supply Payment Loan Security? Customer

  16. Structures for Vendor Finance (cont'd) (C) Operating lease Supply Supplier Finance Supplier Payment Periodic rentals Operating lease Customer

  17. Structures for Vendor Finance (cont'd) (D) Finance lease Supply Supplier Supplier Finance Payment Lease rentals (amortise purchase price) finance lease Customer

  18. Structures for Vendor Finance (cont'd) (E) Vendor supported third party finance Supplier Finance Supplier Counter indemnity Purchase Price Guarantee Supply Loan Bank Customer Security?

  19. Vendor finance - commercial issues • credit exposure • intercreditor issues • customer relationship • costs • tax and accounting

  20. Vendor finance - legal issues • regulatory compliance • due diligence • security • conflict between role of supplier and lender

  21. Vendor Finance - pay as you grow • Capacity based PAYG • Utilisation based PAYG

  22. Conclusion • Financiers • challenge the business model • focus on security • Operators and manufacturers • challenge the business model • cost management

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