Deutsche Glasfaser Stakeholders Return to Negotiating Table After Lenders Push Back on Initial Funding Proposal, Call for Sale

German fiber provider Deutsche Glasfaser’s stakeholders have returned to the negotiating table, after lenders pushed back on an initial offer proposed by sponsors EQT and Canadian pension fund Omers to deal with the company’s overlevered capital structure, sources said.

Some lenders have called for a distressed sale of the fiber operator as an alternative to the proposal, sources added.

The committee of the company’s 14 largest bank lenders, each holding at least 4% of Deutsche Glasfaser’s existing debt, appointed Linklaters and Perella Weinberg Partners for the debt talks in late November last year. The lender group includes BNP Paribas, ABN Amro, Societe Generale, HSBC and LBBW, among others.

The pushback came after EQT and Omers offered to inject €1.1 billion in new preferred equity, under a deal that would see lenders also provide €600 million in new super senior money. Meanwhile 29% of Deutsche Glasfaser’s existing €7 billion debt load, or around €2 billion, would be retrenched to the HoldCo level to delever the company, and the remaining €5 billion would be reinstated at the OpCo level as part of the deal, as reported.

The combined €1.7 billion in new funding was also set to cover the company’s operations through to 2032, allowing it to complete a scaled back goal of passing 3.2 million homes in Germany with fiber coverage and cover its capital expenditure for new customer activations and new wholesale partners.

The proposal was presented to lenders following the release of an independent business review, or IBR, prepared by Boston Consulting Group, or BCG, in late November. The business plan indicated that the new HoldCo debt would be fully repaid at par by maturity, as reported. The fiber provider and its sponsors also asked BCG to begin preparing an IDWS6 – a German special restructuring opinion – at the time.

Sources close to the situation previously told Octus that Deutsche Glasfaser will aim to reach a consensual agreement with lenders, but if that is not possible the company could opt for a U.K. scheme of arrangement, given the existing loan documentation is English-law governed.

Overlevered and Underfinanced

Deutsche Glasfaser’s current €7 billion debt stack comprises a €3 billion term loan, a €2.5 billion capex facility and a €250 million RCF, all provided under a 2021 financing package, alongside a further €1.25 billion provided by existing lenders and the European Investment Bank under an accordion facility in 2024. The lenders to the 2021 package had originally agreed to provide up to €1.5 billion under the accordion facility.

The package, which matures in 2031, was intended to finance the company’s plan to provide 4 million homes with fiber optic coverage by 2025. The company’s website states that it has currently installed over 2.7 million million fiber optic connections.

Following an unsuccessful attempt to raise preferred equity via Goldman Sachs for over a year, the company lined up Freshfields and Lazard ahead of formal debt talks. Deutsche Glasfaser has also been receiving operational assistance from AlixPartners, with partner Jan Kantowsky acting as the group’s chief transformation officer and management team member.

Despite reporting €250 million EBITDA and growing, the company has faced challenges with its fiber rollout, including a slower- than-expected uptick in wholesale activations, distress and insolvency among some of its build partners, customer activation challenges, and a 40% increase in building costs compared with 2020, as reported.

The company is one of a number of German fiber providers that has been struggling with sectorwide challenges in recent years, including higher interest rates, the capital-intensive nature of laying fiber cables, and higher rurality in the country, resulting in longer payback periods and increased stress on liquidity.

Late last year, mid-sized player TeleColumbus entered discussions with stakeholders over a need for new funding. This year, meanwhile, larger provider Unsere Gruene Glasfaser lined up Clifford Chance and DC Advisory’s infrastructure team ahead of talks to address its funding needs and approaching maturities on its overlevered debt stack, and lenders to mid-sized player Northern Fiber have also launched a sale process for the group, after sponsor UBS decided to walk away.

Earlier this week, Octus reported that a smaller regional provider set up in partnership with the city of Essen, Ruhrfiber, has also appointed Alvarez & Marsal ahead of debt talks, while bank lenders have lined up FTI.

Sponsors EQT and Omers bought Deutsche Glasfaser from KKR in 2020, with the former holding a 51% stake and Omers owning the remaining 49%. The company was valued at more than €2.5 billion at the time, according to a report from Reuters.

EQT, Omers and Linklaters declined to comment.