Founder Sir Charles Dunstone prepares to help TalkTalk

Sir Charles Dunston delisted TalkTalk from the stock exchange three years ago Photo: Chris Jackson/Getty Images

TalkTalk founder Sir Charles Dunston prepares to divest new funding for the debt-ridden broadband provider as looming repayments raise fears for its future.

Sir Charles and TalkTalk's other major shareholders have offered to invest £150 million into the company to avert a crisis. Potential debt crisis, sources say.

The company's creditors are pressuring Sir Charles and TalkTalk's other major shareholders, led by private equity fund Toscafund, to provide cash for a rescue deal.

< p>The banks behind TalkTalk's £330m revolving credit facility – effectively a corporate overdraft – are understood to be aiming to reduce their exposure to just £150m when the refinancing comes due in November. 

To achieve this, Sir Charles and his fellow shareholders will need to contribute £180 million in new capital. Talks between the two sides are ongoing.

Some TalkTalk banks decided last year to protect themselves from a potential financial crisis by selling debt to less traditional lenders at a 25 per cent discount, City sources said.

< p>TalkTalk, which has 3.8 million broadband customers and is the UK's fourth largest provider, has been plagued by heavy debt for years. 

Sir Charles and Toscafund delisted the business from the stock exchange three years ago, saddled with new loans, most of which are now due for repayment.

Concerns about the future of TalkTalk have ensured amid discussions by industry regulator Ofcom over a “provider of last resort” regime to keep households and businesses connected.

The company faces two major repayments totaling more than £1bn in the coming months: a £330m revolving credit facility later this year and a £685m bond due in February next year. TalkTalk warned in its reports last year that the timing “may raise significant doubts” about its future.

He is struggling to raise funds and cut his costs as Sir Charles and Toscafund chief Martin Hughes, nicknamed “the Rottweiler” in city circles, fight to maintain control.

Martin Hughes' Toscafund played a central role in the delisting of TalkTalk and the subsequent fight to cut costs.

TalkTalk is currently trying to raise £450 million from the sale of a large stake in its wholesale division to Australian investment giant Macquarie.

Proceeds from the sale were used to pay down some debt and avert a default.

Analysts had previously raised concerns about the value of the wholesale division, pointing out that it relied heavily on TalkTalk's own consumer business, which is losing market share as it moves to full fiber broadband.

Losses more than doubled last year to £70 million and debt servicing costs jumped 35% to £106 million as interest rates soared.

Senior industry sources said alternative The sale of the wholesale division and capital injection is a debt-for-equity swap in which creditors will assume control. Private credit fund Ares Management also has TalkTalk debt and has asked restructuring specialists to advise on its options.

The intense debate threatens a rare setback for Sir Charles, a serial entrepreneur whose fortune was once assessed. for £1bn, largely by selling part of its stake in Carphone Warehouse following its merger with Dixons a decade ago. He is also a major investor in the British branch of the American fast food chain Five Guys.

When Sir Charles teamed up with Toscafund, they tapped private debt fund Ares Management to secure hundreds of millions of pounds in high-risk financing, resulting in Ares becoming TalkTalk's major shareholder, according to Companies House documents.

Although the so-called loan in kind is not due until 2026, interest accrues at an impressive annual compound rate of 13 per cent, resulting in the amount owed rising from £290 million in 2022 to a value in 2023 alone, according to financial information service Debtwire £380 million.

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

Attempts to sell the wholesale division are part of a larger plan of disintegration. In September, a syndicate of the group's existing shareholders bought the business unit for £95 million. Its consumer division is also expected to be put up for sale. Management also cut sales and marketing expenses by 40% in an effort to cut costs.

TalkTalk declined to comment.