A cellphone user passing a Telus store in Toronto.Peter Power/The Globe and Mail
Telus Corp.'s plan to rescue failing wireless provider Mobilicity with a $380-million acquisition is dead, killed by the government. Telus needed a waiver from Ottawa, which had previously declared that no incumbent could buy Mobilicity's airwaves until 2014. The government said no. So now what?
How long can Mobilicity last on its own?
Not long. In court filings, it said it was losing $74-million a year. Mobilicity was set to run out of cash in February. It found very expensive bridge financing, starting with a $15-million tranche, from a group of existing bondholders whose goal it was to keep the company going long enough to find a buyer. That financing, however, has been challenged in court.
Telus, as part of its transaction, was supposed to fund Mobilicity until the deal closed. According to court documents, Telus was to deliver a "non-refundable deposit of $10-million" if the transaction had not closed by June 10.
The company had $508-million of debt, according to court filings a week ago.
Who else wants Mobilicity?
Not many people. Late last year, the company went hunting for buyers and investors. It contacted more than 30 financial sources, and as many potential buyers. Telus was the only company that undertook "advanced negotiations," according to documents filed in court. In addition, the banker for Mobilicity stated that "the Telus offer represents the only executable acquisition proposal that was provided during the strategic review process in 2012 and 2013."
One potential interested party is Catalyst Capital Group. Catalyst owns a big stake in Mobilicity bonds and in the past has offered financing, which was turned down by the company's board. Now Catalyst and the company are involved in a lawsuit.
Who stands to lose?
Mobilicity's investors and lenders.
Equity investors, including founder John Bitove, and U.S.-based fund Quadrangle Group were already going to see their equity investments wiped out even if the Telus agreement had succeeded.
But the Telus deal would have paid out senior bondholders, and limited losses on a lower ranking class of bonds. The senior notes recently traded above par.
The subordinate debt will almost certainly take serious losses in a restructuring, and the senior debt may also face a haircut depending on the outcome.
Senior bondholders include Catalyst Capital Group, a fund run by CI Financial, and another run by Marret Asset Management. CI and Marret also own junior debt.
What now?
Plan B is a restructuring. The idea is to recapitalize the company under Canada Business Corporations Act proceedings, which are for solvent companies, rather than the Companies' Creditors Arrangement Act, which is for insolvent companies.
Mobilicity said in April that while it "does not believe that the commencement of CCAA proceedings is warranted at this time, that could change in the near future."
But even with a new capital structure, it's not clear how Mobilicity changes the fact that it is not making money on its core business of selling cellphone services. And even if Mobilicity can find a way to last until 2014, when the explicit restrictions on selling to an incumbent come off, it's not clear from the government's statement Tuesday that a Telus acquisition could proceed even then.
(Boyd Erman is a Globe and Mail Reporter & Streetwise Columnist.)
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