SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the Month of December 2002
Commission file number: 0-30924
MARCONI PLC
(Exact name of Registrant as specified in its Charter)
One Bruton Street
London W1J 6AQ
England
(Address of principal executive offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.)
Form 20-F X Form 40-F
(Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange
Act of 1934.)
Yes No X
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
In order to utilize the "Safe Harbor" provisions of the United States Private
Securities Litigation Reform Act of 1995 (the "Reform Act"), Marconi plc ( the
"Company") is providing the following cautionary statement. Except for
historical information contained herein, statements contained in this Report on
Form 6-K may constitute "forward-looking statements" within the meaning of the
Reform Act. The words "believe", "anticipate", "expect", "intend", "estimate",
"plan", "assume", "positioned", "will", "may", "risk" and other similar
expressions which are predictions of or indicate future events and future trends
which do not relate to historical matters identify forward-looking statements.
Reliance should not be placed on such statements because they involve known and
unknown risks, uncertainties and other factors which are in some cases beyond
the control of the Company, together with its subsidiaries (the "Group"), and
may cause the actual results, performance or achievements of the Group to differ
materially from anticipated future results, performance or achievements
expressed or implied by such forward-looking statements (and from past results,
performance or achievement). Certain factors that may cause such differences
include but are not limited to the following: (1) any major disruption in
production at our key facilities; (2) changes in the environmental, tax and
other laws and regulations, which, among other things, could cause us to incur
substantial additional capital expenditures and operation and maintenance costs;
and (3) adverse changes in the markets for our products, including as a result
of increased competition in the highly competitive international markets for
such products. These and other risks, uncertainties and factors are discussed in
the Company's Registration Statement on Form F-1 and other filings with the
Securities and Exchange Commission, including this Form 6-K. Shareholders and
prospective investors are cautioned not to place undue reliance on these
forward-looking statements which speak only as to the Company's judgment as of
the date hereof. Any such forward-looking statements are not intended to give
any assurance as to future results. The Company undertakes no obligation to
publicly update or revise any of these forward-looking statements, whether to
reflect new information or future events or circumstances or otherwise.
MARCONI PLC
FINANCIAL RESTRUCTURING: UPDATE
London, 16 December 2002 - Marconi plc (MONI) announces that it has concluded
modifications to the non-binding indicative heads of terms (the "Heads of
Terms") for the financial restructuring of Marconi plc and its wholly owned
subsidiary Marconi Corporation plc ("Marconi Corporation") (the "Restructuring")
and has also agreed amendments to the interim security provided to the Group's
Syndicate Banks and bondholders (including the bond trustees) and certain ESOP
derivative providers. The modifications to the Heads of Terms, set out in an
addendum, are the culmination of continued good faith negotiations which have
been taking place during recent weeks between Marconi plc, Marconi Corporation,
the Co-ordination Committee of Syndicate Banks and an informal ad hoc committee
of bondholders (the "Bondholder Committee").
Mike Parton, Chief Executive of Marconi plc, said:
"Today's announcement represents a significant step forward towards the
conclusion of our financial restructuring. The timetable gives us a clear path
to our emergence before the end of our financial year.
Customers, suppliers and employees can be reassured by the progress we have
made."
Key Developments Since the 29 August 2002 Announcement
Since the 29 August announcement of the Restructuring, a number of milestones
have been reached and significant progress has been made towards a successful
conclusion of the Restructuring:
* Interim Security: On 13 September 2002, interim security over the balance
of the lockbox accounts established in April 2002 was granted in favour of
the Group's Syndicate Banks, bondholders (including the bond trustees) and
certain ESOP derivative providers;
* Payment of Interest: With the requisite approvals from each relevant
creditor group, accrued interest on all external Marconi Corporation
financial indebtedness for the period to 15 October 2002 has been paid;
* Q2 Trading: Q2 trading announcement on 22 October 2002 supplemented by
today's interim results announcement has confirmed that during a period
marked by further market deterioration, the Marconi Group
has continued to trade in line with its Sensitised Business Plan and has
won major orders across a number of product ranges;
* Further Cost Base Reductions: Given the current market conditions,
management consider it prudent to reduce the breakeven level of sales
below the annualised run-rate achieved in the second quarter.
Consequently, the Marconi Group now expects to reduce its Core
operating cost run-rate to GBP520 million per annum before the end of the
current financial year, ahead of its previously disclosed schedule.
Furthermore, the Marconi Group intends to implement further cost
reduction actions to reduce the annualised Core operating cost base to
GBP450 million during the next financial year; and
* New Board Members: As announced today (see separate press release: "New
Board Members"), John Devaney has agreed to become non-executive Chairman
and Kent Atkinson and Werner Koepf have agreed to become non-executive
directors of Marconi plc and Marconi Corporation. It is expected that
additional non-executive appointments will be made in due course. These
appointments follow the appointment of Chris Holden as acting CFO of
Marconi plc and Marconi Corporation as announced on 14 November 2002.
Summary of Key Changes to the Indicative Heads of Terms
The terms of the Restructuring as updated today by the addendum are in most
respects, including the initial cash distribution, the same as those of the
Heads of Terms announced by Marconi plc on 29 August 2002. The key changes made
to the Heads of Terms include:
* Effective Date: The Restructuring completion date (the "Effective Date")
is now expected to be on or before 15 March 2003 (previously on or before
31 January 2003);
* Scheme Posting Date: Scheme documentation now expected to be posted in
January 2003 (previously November 2002);
* Senior Notes: To be denominated in Euros with a possible US Dollar option
within certain limitations; and a mechanism for depositing one year's
interest into a segregated account from certain cash reserves and
asset disposal proceeds during the first two years has been removed;
* Junior Notes: To be denominated in Euros; interest rate increased to 12
per cent pay in kind ("PIK") or 10 per cent cash (previously 10 per cent
and 8 per cent respectively); and an interest holiday of 2 years
has been removed;
* Limited Recourse Notes: To be denominated in US Dollars; interest rate
increased to 12 per cent PIK or 10 per cent cash (previously 10 per cent
and 8 per cent respectively); and the interest holiday of 2 years
has been reduced to 1 year;
* Early Redemption: Senior Notes, Junior Notes and Limited Recourse Notes
may be redeemed contemporaneously at any time at a redemption price at the
higher of 110 per cent of par or at par plus a makewhole based
on 50 basis points above the yield on US treasuries of similar maturity,
plus, in each case, accrued interest;
* Retained Cash on Completion: Marconi Group expects to retain approximately
GBP724 million (based on projected balances as at 28 February 2003)
instead of GBP635 million, as previously indicated (see additional detail
in Annex B);
* Working Capital Arrangements: In accordance with its forecast
requirements, Marconi Corporation expects to obtain working capital
facilities of approximately USD45 million (approximately GBP30 million) in
the US, instead of the GBP100 million of facilities assumed previously;
* Performance Bonding Facility: Marconi Corporation expects to obtain a
GBP50 million super priority performance bonding facility; and
* Letters of current intention both to support the Restructuring and to vote
in favour of the Marconi plc and Marconi Corporation schemes have been
obtained from the Joint lead Co-ordinators of the Syndicate
Banks and the Bondholder Committee. The requirement that the interim
security over the lockbox accounts be released unless formal undertakings
to support the Restructuring are obtained from a required
percentage of the bank and bondholder creditors has been removed.
Conference Call Details
Management will host a conference call and audiocast for analysts and investors
on 16 December at 4pm UK time.
The call can be accessed on Marconi's web-site or by dialling +44 (0) 20 8996
3900 from Europe or +1 617 801 9702 from US and quoting "Marconi".
An instant replay will be available for seven days by dialling +44 (0) 1296
618700, pass code 661008 from Europe or +617 801 6888, passcode 71903 from US.
Materials to accompany the call will be available on Marconi's website
www.marconi.com.
This press release should be read in conjunction with the full text of the
announcement and its related Annexes: Annex A "Summary of Actual Claims and
Contingent Claims" and Annex B "Updated Financial Information".
ENDS/...
Notes to Editors
About Marconi plc
Marconi plc is a global telecommunications equipment and solutions company
headquartered in London. The company's core business is the provision of
innovative and reliable optical networks, broadband routing and switching and
broadband access technologies and services. The company's aim is to help fixed
and mobile telecommunications operators worldwide reduce costs and increase
revenues.
The company's customer base includes many of the world's largest
telecommunications operators. The company is listed on the London Stock Exchange
under the symbol MONI. Additional information about Marconi can be found at
www.marconi.com
This press release contains forward-looking statements with respect to products,
partners, customers, future growth and other matters. Please refer to the Form
20-F report and Form 6-K reports filed by Marconi plc with the United States
Securities and Exchange Commission for a discussion of risks that could cause
actual results to differ materially from such statements.
Copyright (c) 2002 Marconi plc. All rights reserved. All brands or product names
are trademarks of their respective holders.
Contacts
Joe Kelly / David Beck Heather Green
Public Relations Investor Relations
Marconi plc Marconi plc
+44 (0) 207 306 1771 +44 (0) 207 306 1735
joe.kelly@marconi.com heather.green@marconi.com
MARCONI PLC
FINANCIAL RESTRUCTURING: UPDATE
Marconi plc announces that it has concluded modifications to the non-binding
indicative heads of terms (the "Heads of Terms") for the financial restructuring
of Marconi plc and its wholly owned subsidiary Marconi Corporation plc ("Marconi
Corporation") (the "Restructuring") and has also agreed amendments to the
interim security provided to the Group's Syndicate Banks, bondholders (including
the bond trustees) and certain ESOP derivative providers. The modifications to
the Heads of Terms, set out in an addendum, are the culmination of continued
good faith negotiations which have been taking place during recent weeks between
Marconi plc, Marconi Corporation, the Co-ordination Committee of Syndicate Banks
and an informal ad hoc committee of bondholders (the "Bondholder Committee").
Key Developments Since the 29 August 2002 Announcement
Since the 29 August announcement of the Restructuring, a number of milestones
have been reached and significant progress has been made towards its successful
conclusion:
* Interim Security: On 13 September 2002, interim security over the balance
of the lockbox accounts established in April 2002 was granted in favour of
the Group's Syndicate Banks, bondholders (including the bond trustees) and
certain ESOP derivative providers;
* Payment of Interest: With the requisite approvals from each relevant
creditor group, accrued interest on all external Marconi Corporation
financial indebtedness for the period to 15 October 2002 has been paid;
* Q2 Trading: Q2 trading announcement on 22 October 2002 supplemented by
today's interim results announcement has confirmed that during a period
marked by further market deterioration, the Marconi Group
has continued to trade in line with its Sensitised Business Plan and has
won major orders across a number of product ranges;
* Further Cost Base Reductions: Given the current market conditions,
management consider it prudent to reduce the breakeven level of sales
below the annualised run-rate achieved in the second quarter.
Consequently, the Marconi Group now expects to reduce its Core operating
cost run-rate to GBP520 million per annum before the end of the current
financial year, ahead of its previously disclosed schedule.
Furthermore, the Marconi Group intends to implement further cost reduction
actions to reduce the annualised Core operating cost base to GBP450
million during the next financial year; and
* New Board Members: As announced today (see separate press release: "New
Board Members"), John Devaney has agreed to become non-executive Chairman
and Kent Atkinson and Werner Koepf have agreed to become non-executive
directors of Marconi plc and Marconi Corporation. It is expected that
additional non-executive appointments will be made in due course. These
appointments follow the appointment of Chris Holden as acting CFO of
Marconi plc and Marconi Corporation as announced on 14 November 2002.
Summary of Key Changes to the Indicative Heads of Terms
The terms of the Restructuring as updated today by the addendum are in most
respects, including the initial cash distribution, the same as those of the
Heads of Terms announced by Marconi plc on 29 August 2002. The key changes made
to the Heads of Terms include:
* Effective Date: The Restructuring completion date (the "Effective Date")
is now expected to be on or before 15 March 2003 (previously on or before
31 January 2003);
* Scheme Posting Date: Scheme documentation now expected to be posted in
January 2003 (previously November 2002);
* Senior Notes: To be denominated in Euros with a possible US Dollar option
within certain limitations; and a mechanism for depositing one year's
interest into a segregated account from certain cash reserves and
asset disposal proceeds during the first two years has been removed;
* Junior Notes: To be denominated in Euros; interest rate increased to 12
per cent pay in kind ("PIK") or 10 per cent cash (previously 10 per cent
and 8 per cent respectively); and an interest holiday of 2 years
has been removed;
* Limited Recourse Notes: To be denominated in US Dollars; interest rate
increased to 12 per cent PIK or 10 per cent cash (previously 10 per cent
and 8 per cent respectively); and the interest holiday of 2 years
has been reduced to 1 year;
* Early Redemption: Senior Notes, Junior Notes and Limited Recourse Notes
may be redeemed contemporaneously at any time at a redemption price at the
higher of 110 per cent of par or at par plus a makewhole based
on 50 basis points above the yield on US treasuries of similar maturity,
plus, in each case, accrued interest;
* Retained Cash on Completion: Marconi Group expects to retain approximately
GBP724 million (based on projected balances as at 28 February 2003)
instead of GBP635 million, as previously indicated (see additional detail
in Annex B);
* Working Capital Arrangements: In accordance with its forecast
requirements, Marconi Corporation expects to obtain working capital
facilities of approximately USD45 million (approximately GBP30 million) in
the US, instead of the GBP100 million of facilities assumed previously;
and
* Performance Bonding Facility: Marconi Corporation expects to obtain a
GBP50 million super priority performance bonding facility.
Letters of Support
Letters of current intention both to support the Restructuring and to vote in
favour of the Marconi plc and Marconi Corporation schemes have been obtained
from the Joint lead Co-ordinators of the Syndicate Banks and the Bondholder
Committee. The requirement that the interim security over the lockbox accounts
be released unless formal undertakings to support the Restructuring are obtained
from a required percentage of the bank and bondholder creditors has been
removed.
Process to Completion of the Restructuring
Marconi plc, Marconi Corporation and their advisers continue to make progress
towards completing documentation based on the principles set out in the Heads of
Terms as updated in the addendum. However, as announced on 21 November 2002,
given the complex nature of the issues under negotiation and the time required
to document definitive agreements, it was not possible to finalise such
documentation in November so as to enable the Restructuring to be completed
before the end of January 2003.
Marconi has sought and obtained the necessary agreement of the requisite
majorities of both the Syndicate Banks and Bondholder Committee to extend the
timetable for completion of the Restructuring, with a view to posting the scheme
documentation to relevant creditors in January 2003 and to completing the
Restructuring by no later than 15th March 2003.
Restructuring Implementation
It is still envisaged that the Restructuring will be implemented by way of
separate creditors' schemes of arrangement under section 425 of the Companies
Act 1985 in relation to each of Marconi plc and Marconi Corporation. When the
Restructuring becomes effective, Marconi Corporation will become the new holding
company of the Marconi Group and Marconi plc will ultimately be "liquidated" on
a solvent basis. Related proceedings under section 304 of the US Bankruptcy Code
will be utilised to assist with the implementation of the Restructuring.
It is proposed that two classes of creditors will be constituted for the purpose
of the Marconi plc and Marconi Corporation schemes. The first class of creditors
will comprise general unsecured creditors, subject to certain exclusions. The
second class of creditors will comprise those of Marconi plc's ESOP derivative
providers who have undertaken to support the Restructuring. It is proposed that
certain claims of creditors of Marconi plc and Marconi Corporation will be
excluded from the schemes and will therefore not be affected by the proposed
Restructuring. Marconi plc believes that all creditors who will be affected by
the proposed schemes have already been notified (either by public advertisements
or directly) and will, in due course, be sent details by Marconi plc or Marconi
Corporation of the terms of the schemes and of the further steps that will need
to be taken by them.
Marconi remains of the view that the material day to day operations of Marconi
Corporation and its subsidiaries, in particular the supply to customers and the
payment of suppliers and employees, will remain unaffected by the Restructuring.
Marconi Corporation Scheme of Arrangement
Under the Marconi Corporation scheme, approximately GBP3.8 billion of externally
held financial indebtedness, comprising the Group's main syndicated bank
facility (the "Syndicated Bank Debt") and its externally held US Dollar- and
Euro-denominated bonds (the "External Bond Debt"), is to be exchanged for a
package of cash, new equity and new debt securities of Marconi Corporation (the
"Restructuring Consideration" (see details immediately below)). Holders of
certain other claims and contingent claims against Marconi Corporation will also
be included in the Marconi Corporation scheme and will also participate in the
Restructuring Consideration pro rata to their admitted claims against Marconi
Corporation. An updated summary of key expected actual and contingent claims
against Marconi Corporation is set out in Annex A.
Restructuring Consideration
The aggregate nominal amount of the consideration to be received by the
creditors participating in the Marconi Corporation scheme in exchange for the
cancellation of their claims remains unchanged. Creditors participating in the
Marconi Corporation scheme will receive a distribution pro rata to their
admitted claims as follows:
Cash
* Cash equal to at least GBP165 million (approximately GBP95 million of the
GBP260 million referred to in the 29 August announcement having already
been paid to bring interest on Marconi Corporation's financial
indebtedness current as at 15 October 2002);
Senior Notes
* GBP450 million of new senior secured notes due April 2008 to be issued by
Marconi Corporation with an 8 per cent cash coupon, payable quarterly and
accruing from the completion of the Restructuring (the
"Senior Notes"). The Senior Notes will be denominated in Euros with a
possible US Dollar option within certain limitations. The Senior Notes
will be secured by substantially all of the assets of the Group
(other than certain of the Group's US Assets, namely Outside Plant and
Power ("OPP"), Broadband Routing and Switching ("BBRS") and North
American Access ("NA Access"), together the "Ringfenced US Assets") on
a senior secured basis and against the Ringfenced US Assets on a junior
subordinated basis. The Senior Notes will be mandatorily redeemable at
110 per cent of par, plus accrued interest from proceeds of
certain asset disposals and releases of certain restricted cash balances
and retentions (but only after the Junior Notes and, in the case of
disposals of Ringfenced US Assets, the Limited Recourse Notes have
been repaid in full). The Senior Notes will benefit from a change of
control put option at 110 per cent of par, plus accrued interest;
- In addition, the Senior Notes, Junior Notes and Limited Recourse
Notes may, at the option of Marconi Corporation, be redeemed in
full contemporaneously at any time at a redemption price at
the higher of 110 per cent of par or at par plus a makewhole based
on 50 basis points above the yield on US treasuries of similar
maturity, plus, in each case, accrued interest;
- A mechanism for depositing one year's interest into a segregated
account from certain cash reserves and asset disposal proceeds
(that would otherwise have gone to redeem the Junior Notes)
during the first two years has been removed;
Junior Notes
* GBP250 million of new Euro denominated junior secured notes due October
2008 to be issued by Marconi Corporation, with, at Marconi Corporation's
option, either a 12 per cent PIK coupon or a 10 per cent
cash coupon payable quarterly and accruing immediately from the
completion of the Restructuring (the "Junior Notes");
- At the time of the 29 August announcement, the Heads of Terms
envisaged an interest holiday for an initial 2 year period and
thereafter, at Marconi Corporation's option, either a 10 per cent
PIK coupon or an 8 per cent cash coupon payable quarterly;
- As stated previously, the Junior Notes will be secured by
substantially all of the assets of the Group, including the
Ringfenced US Assets, on a senior subordinated basis. The Junior
Notes will be mandatorily redeemable from:
* the release of certain restricted cash balances that cannot
be distributed initially (including cash collateral held
against performance bonds (subject to the super priority
bonding arrangements described below) and retentions pending
resolution of potential liabilities in relation to the
Group's previously disclosed ESOP hedging arrangements (note
1)); and
* certain disposal proceeds (non-US Asset disposals and US
Asset disposals after settlement of the Limited Recourse
Notes) and excess working capital cash at the Effective Date;
- The Junior Notes must be redeemed from such proceeds at 110 per
cent of par, plus accrued interest prior to maturity and are
subject to a change of control put option at 110 per cent of par,
plus accrued interest. The Junior Notes will also be redeemable
contemporaneously with the other notes as set out above;
- To the extent that any cash reserves or excess cash (see below)
becomes available prior to the Effective Date which, had it become
available after the Effective Date, would have been required
to redeem the Junior Notes:
* the initial cash distribution under the Marconi Corporation
scheme shall be increased by that amount of such released
cash reserves or excess cash; and
* the amount of the Junior Notes to be issued as part of the
Marconi Corporation scheme shall be reduced. The reduction
shall be an amount equal to the principal amount of the
Junior Notes that would have been repaid had such released
cash reserves or excess cash been applied in redemption of
the Junior Notes at 110 per cent of principal.
Limited Recourse Notes
* USD300 million (approximately GBP193 million (note 2)) of new secured
limited recourse notes due October 2008 to be issued by Marconi
Corporation, with an interest holiday for an initial 1 year period and
thereafter, at Marconi Corporation's option, either a 12 per cent PIK
coupon or a 10 per cent cash coupon payable quarterly and accruing from
the first anniversary of the completion of the Restructuring
(the "Limited Recourse Notes");
- At the time of the 29 August announcement, the Heads of Terms
envisaged an interest holiday for an initial 2 year period and
thereafter, at Marconi Corporation's option, either a 10 per cent
PIK coupon or an 8 per cent cash coupon payable quarterly;
- As stated previously, the Limited Recourse Notes must be
mandatorily redeemed upon disposals of the Ringfenced US Assets
prior to 2008. The Limited Recourse Notes will be secured against
the Ringfenced US Assets of the Group on a senior secured basis and
recourse will be limited to the Ringfenced US Assets. The Limited
Recourse Notes must be redeemed in connection with such
disposals at 110 per cent of par, plus accrued interest prior to
maturity as well as being subject to a change of control put option
at 110 per cent of par, plus accrued interest. The Limited
Recourse Notes will also be redeemable contemporaneously with the
other notes as set out above.
Equity
* 99.5 per cent of the issued share capital of Marconi Corporation
following the Restructuring (unchanged from the 29 August announcement).
Marconi plc's Scheme of Arrangement
At the time of the Restructuring, Marconi plc's main assets will include a
wholly-owned subsidiary, Ancrane Limited and an inter-company receivable due
from Ancrane Limited. Ancrane Limited, which holds in aggregate approximately 18
per cent. of the US Dollar and Euro-denominated bonds ("Internal Bond Debt") is
a creditor of Marconi Corporation and will, under the Marconi Corporation
scheme, receive a pro rata share of the Restructuring Consideration. In
consideration for the release of their claims, creditors participating in the
Marconi plc scheme will receive a pro rata distribution of the assets of Marconi
plc which will include the Restructuring Consideration received through Ancrane
Limited.
Post-Restructuring Working Capital
The 29 August announcement noted that Marconi Corporation expected to retain
GBP155 million post restructuring to meet the potential working capital needs of
the Core business and that it would use its best endeavours to obtain a working
capital facility (with an assumed required amount of GBP100 million). Marconi
Corporation has subsequently undertaken further work to assess its future
working capital requirements and Marconi now expects to satisfy its
post-restructuring working capital needs by:
* retaining GBP196 million for working capital needs in the Core;
* obtaining limited recourse US working capital facilities in an amount
totalling approximately USD45 million (approximately GBP30 million); and
* obtaining a GBP50 million bonding facility (the "Bonding Facility") to
cover the issue of new performance bonds. The Bonding Facility will
likely be provided on a super priority basis and will benefit from the
same security package to be granted in favour of the Senior Notes and the
Limited Recourse Notes, but on a first priority basis. The issue of bonds
under the Bonding Facility will likely be conditional upon the
prior deposit of 50 per cent cash collateralisation against the face
amount of the bonds to be issued.
As part of funding cash flows through to breakeven, Marconi Corporation will be
permitted to retain up to GBP82 million proceeds from the disposal of certain
identified assets, which are intended to be sold by the Group prior to or after
the Effective Date. Previously it was assumed that Marconi Corporation would
have access to the first GBP62 million of proceeds from certain identified asset
disposals. Any net disposal proceeds in excess of this amount of GBP82 million
obtained for the identified assets or any net proceeds received from the sale of
assets other than the Ringfenced US Assets (other than in the ordinary course of
business), in each case prior to the Effective Date, will form part of excess
cash as will any surplus cash (based on currently expected working capital
requirements) in excess of a materiality threshold. Such excess cash will be
applied to reduce the principal amount of the Junior Notes prior to the
Effective Date.
The Marconi Group Post-Restructuring
It is now expected that cash resources of approximately GBP724 million
(previously GBP635 million) will be retained within the business immediately
following the Restructuring (based on projected balances as at 28 February
2003), comprising certain restricted cash balances and amounts required for
working capital purposes. These cash resources include approximately GBP175
million (previously GBP150 million) which will be held as cash collateral for
performance bonds and bilateral loans and up to approximately GBP170 million
(unchanged) which will be held back pending the resolution of potential
liabilities in relation to the Group's prior ESOP hedging arrangements. Further
information on retained cash is shown in Annex B.
Taking into account the cash to be distributed as part of the Restructuring and
approximately GBP40 million of subsidiary bilateral loans and finance leases
(previously approximately GBP40 million), the pro forma net indebtedness of the
total Group immediately following the Restructuring is expected to be
approximately GBP210 million (previously approximately GBP300 million); pro
forma Core net indebtedness (which excludes the Limited Recourse Notes) is
expected to be approximately GBP20 million (previously GBP100 million).
Security Arrangements
On 13 September 2002, Marconi plc announced that interim security had been
granted over the balance of the cash held in the lockbox accounts established in
April 2002 (the "Secured Cash"). The initial balance of the Secured Cash
(approximately GBP866 million) has reduced to GBP749 million as at 29 November
2002 as a result of releases approved in accordance with an agreed cash flow
forecast. In the light of refinements to the Sensitised Business Plan, lockbox
releases being lower than originally forecast and the extension of the time to
the completion of the Restructuring, Marconi Corporation has concluded with the
Syndicate Banks and the Bondholder Committee a revised forecast against which
releases from the lockbox will be approved. The revised cashflow forecast is
consistent with the Marconi Group's ability to satisfy its expected payment
obligations arising in connection with the Restructuring.
As part of the original grant of the interim security:
* members of the Bondholder Committee undertook to enter into agreements to
support the Restructuring; and
* provision was made for the security to be released if, by 15 business days
after the launch of the Marconi plc and Marconi Corporation schemes, less
than 39 per cent in principal amount of the Marconi Corporation banks and
bondholders (excluding bonds which were subject to the bondholder
undertakings referred to above) had undertaken to support the Marconi
Corporation scheme of arrangement.
Marconi plc and Marconi Corporation have received letters of current intention
from the Joint lead Co-ordinators of the Syndicate Banks and from the Bondholder
Committee both to support the Restructuring and to vote in favour of the Marconi
plc and Marconi Corporation schemes. As part of the process to conclude the
addendum to the Heads of Terms and the extended timetable, the Bondholder
Committee undertakings referred to above have now been replaced by these letters
of current intention and the security release provision referred to above has
been removed from the interim security. Furthermore, the undertakings given by
Marconi Corporation in favour of the Bondholder Committee (in September 2002)
relating to the interim security have also been amended.
Any enforcement event which may have existed in relation to the interim security
as a result of a probable inability to complete the Restructuring by 31 January
2003 has been waived.
ESOP Derivative Arrangements
As set out in the 29 August announcement, as part of the Restructuring the Group
intends to implement separate arrangements for the Group's ESOP derivative
providers. These arrangements are conditional on the commitment of the
respective ESOP derivative providers to support the Restructuring. To date, one
of the Group's three ESOP derivative providers has given such a commitment and
an escrow agreement has now been entered into with this ESOP derivative provider
to give effect to these arrangements.
General
As stated previously, completion of the Restructuring will be conditional upon,
amongst other things, securing the necessary support of the Syndicate Banks,
bondholders and other creditors whose claims will be compromised as part of the
court approved Restructuring.
The Boards of Marconi plc and Marconi Corporation continue to believe that the
Restructuring is in the best interests of their respective stakeholders. The
Board further believes that a consensual restructuring is the only viable
alternative to an administration.
Notes
1 As previously disclosed, Marconi plc issued share options to employees
under a number of different option plans. In order to hedge some of the
potential cost of acquiring shares in order to satisfy the
Group's obligations under such plans, Marconi plc entered into contracts
(ESOP derivative transactions) to purchase shares in the future at
prices which were fixed at the date of the contract. It is
currently expected that a total of GBP170 million may be set aside
pending determination of any claims which the ESOP derivative providers
may have against Marconi Group companies other than Marconi plc.
The ESOP arrangements provide for monies to be set aside for the benefit
of the participating ESOP derivative providers only to the extent that
it is subsequently found by a court, or agreed between the
relevant parties, that the participating ESOP derivative providers would
have been able to recover amounts from existing and past subsidiaries of
Marconi Corporation under existing intercompany funding
arrangements relating to the Group's prior ESOP hedging arrangements.
2 US Dollar- and Euro-denominated balances translated, for presentation
purposes only, into sterling at the Marconi Group's November month-end
exchange rates of USD:GBP1.556 and Euro:GBP1.564
ENDS/...
Notes to Editors
About Marconi plc
Marconi plc is a global telecommunications equipment and solutions company
headquartered in London. The company's core business is the provision of
innovative and reliable optical networks, broadband routing and switching and
broadband access technologies and services. The company's aim is to help fixed
and mobile telecommunications operators worldwide reduce costs and increase
revenues.
The company's customer base includes many of the world's largest
telecommunications operators. The company is listed on the London Stock Exchange
under the symbol MONI. Additional information about Marconi can be found at
www.marconi.com
This press release contains forward-looking statements with respect to products,
partners, customers, future growth and other matters. Please refer to the Form
20-F report and Form 6-K reports filed by Marconi plc with the United States
Securities and Exchange Commission for a discussion of risks that could cause
actual results to differ materially from such statements.
Copyright (c) 2002 Marconi plc. All rights reserved. All brands or product names
are trademarks of their respective holders.
Contacts
Joe Kelly / David Beck
Public Relations
Marconi plc
+44 (0) 207 306 1771
joe.kelly@marconi.com
Heather Green
Investor Relations
Marconi plc
+44 (0) 207 306 1735
heather.green@marconi.com
ANNEX A
SUMMARY OF KEY ACTUAL CLAIMS AND CONTINGENT CLAIMS
Since the announcement of 29 August 2002, Marconi plc has continued the process
of identifying and quantifying actual and contingent claims against both Marconi
plc and Marconi Corporation. KPMG has been appointed to assist in preparing the
schemes and to assist the companies in considering the level of claims that
might be made under each of the schemes. As part of this process, Marconi plc
and Marconi Corporation have placed advertisements in certain national and
international newspapers inviting all persons having a claim against either
company, whether actual or contingent, to submit details of their claims to
KPMG, 8 Salisbury Square, London EC4Y 8BB (Attention: Richard Heis). Marconi plc
and Marconi Corporation have also written to certain known creditors and
performed further internal due diligence in order to estimate the level of
claims that might be made under the schemes. This process is now largely
complete and to date has not identified any substantial additional creditor
claims.
Marconi Corporation
There are three main categories of actual or contingent scheme creditor claims
against Marconi Corporation:
(i) Syndicated Bank Debt and External Bond Debt representing approximately
GBP3.8 billion of indebtedness;
(ii) Internal Bond Debt and inter-company claims against Marconi Corporation
which are anticipated to be, in aggregate, approximately GBP0.8
billion; and
(iii) Additional anticipated sundry third party claims, which are likely to
include sundry loans, guarantees, class actions and other lawsuits and
derivative positions.
In total the anticipated scheme claims are expected to be not less than GBP4.9
billion (excluding a general reserve).
A general reserve will need to be established to provide for the settlement of
contingent and unknown claims. The precise size of this reserve will be
dependent on additional claims that may emerge and will be set out in the scheme
document. If this hold back is not required to settle contingent claims, it will
be distributed to actual claimants on a pro rata basis. Such distribution, if
any, is only likely after a suitable waiting period.
Potential Scheme Claims Against Marconi Corporation plc
(GBP millions)
Syndicated bank facility 2,080
Yankee and Euro bonds (externally held) 1,740
Other financial creditors 125
Ancrane Limited (internally held bond debt and inter-company claims) 760
Sundry third party creditors 170
General reserve 125
--------
Currently estimated to be 5,000
It is currently estimated that the general reserve (described above)
representing a provision for claims of GBP125 million will be set aside for any
creditors who have not been identified as at the date for determining those
creditors that benefit from the initial distribution.
Marconi plc
Claims against Marconi plc include the value of guarantees given in respect of
Marconi Corporation's External and Internal Bond Debt and Syndicate Bank Debt
and sundry third party claims including class actions, other lawsuits and
derivative positions. A general reserve will need to be established to provide
for the settlement of contingent and unknown claims. The precise size of this
reserve will be dependent on additional claims that may emerge and will be set
out in the scheme document. If this hold back is not required to settle
contingent claims, it will be distributed to actual claimants on a pro rata
basis. Such distribution, if any, is only likely after a suitable waiting
period.
Potential Scheme Claims Against Marconi plc
(GBP millions)
Syndicated bank facility 2,080
Yankee and Euro bonds (externally held) 1,740
Ancrane Limited (internally held bond debt) 375
ESOP guarantee claim 170
Marconi Corporation inter-company claims 405
Sundry third party creditors 195
General reserve 250
--------
Currently estimated to be 5,215
It is currently estimated that the general reserve (described above)
representing a provision for claims of GBP250 million will be set aside for any
creditors who have not been identified as at the date for determining those
creditors that benefit from the initial distribution.
It is important to note that the above represents the Group's current assessment
of claims and the estimated required level of general reserves that might be
made in the Marconi plc and Marconi Corporation schemes. Additional claims could
materialise before the launch of the Restructuring, which would need to be taken
into account as part of the Restructuring and might affect either the quantum of
the scheme claims or the level of the general reserves.
At the time of the Restructuring, Marconi plc's main assets will include a
wholly-owned subsidiary, Ancrane Limited and an inter-company receivable due
from Ancrane Limited. Ancrane Limited is a creditor of Marconi Corporation and
will, under the Marconi Corporation scheme, receive a pro rata share of the
Restructuring Consideration. In consideration for the release of their claims,
creditors participating in the Marconi plc scheme will receive a pro rata
distribution of the assets of Marconi plc which will include the Restructuring
Consideration received through Ancrane Limited.
Marconi plc has an inter-company liability owing to Marconi Corporation. Marconi
Corporation will therefore be entitled to receive a pro rata distribution of the
assets of Marconi plc which, as described above, will include a proportion of
the Restructuring Consideration. Any Restructuring Consideration that flows to
Marconi Corporation in this manner will be made available to the Marconi
Corporation scheme creditors. It is anticipated that account will be taken of
such an amount as if it were payable to Marconi Corporation in determining the
distribution to be made under the Marconi Corporation scheme.
ANNEX B
Updated Financial Information
As previously disclosed in the 29 August announcement, in order to facilitate
the Restructuring discussions, certain non-public information (the
"Information") has been presented to the Syndicate Banks and certain
bondholders. Prior to the presentation of the Information, Marconi entered into
non-disclosure agreements with certain of the bondholders which require Marconi
to publish the Information on a specified date and which restrict such
bondholders from dealing in Marconi securities until the publication of the
Information. In order to facilitate this announcement, Marconi agreed to publish
such Information at the conclusion of these discussions.
The Information has been prepared based on certain assumptions and projections
with respect to the Group's revenue generating capability, capital expenditures,
operating expenses and trading conditions in the telecommunications equipment
market and on the basis of information known at the time it was prepared. A
substantial part of the information was prepared by Marconi management for
internal purposes and not with a view to public disclosure.
The assumptions used in preparing the Information are inherently subject to
significant uncertainties and actual results will differ, perhaps materially,
from those projected. Neither Marconi nor Marconi Corporation gives any
assurance that the assumptions that underpin the Information are correct or that
the projections and estimates contained in this Annex will reflect actual
results of operations and cash flows. No representation is made or intended with
respect to the likely existence of any particular future set of facts or
circumstances. No reliance should be placed on the Information or any part of it
and it is not intended to persuade or incite anyone to engage in investment
activity. Neither Marconi nor Marconi Corporation will be publishing any updates
in relation to any part of the Information.
Marconi is providing the following statement by way of general caution and in
order to utilise the "Safe Harbor" provision of the US Private Securities
Litigation Reform Act of 1995. Except for reported financial results or other
historical information, certain statements in this press release are
forward-looking statements, including, but not limited to, statements that are
predictions of or indicate future events, trends, plans or objectives. Reliance
should not be placed on such statements because, by their nature, they are
subject to known and unknown risk and uncertainties and can be affected by other
factors which are beyond the control of Marconi and its subsidiaries, and may
cause actual results, performance and achievements to differ materially from
anticipated future results, performance and achievements expressed or implied in
the forward-looking statements (and from the past results, performance and
achievement). Although not exhaustive, the following factors could cause such
differences: any significant change in the terms of the Restructuring from those
set out in the Heads of Terms; any major disruption in production at Marconi's
or its strategic suppliers' key facilities; changes in tax and other laws and
regulations, which, among other things, could cause Marconi to incur substantial
additional capital expenditures and operation and maintenance costs; and adverse
changes in the markets for Marconi's products. These factors and other factors
that could affect these forward-looking statements are described in Marconi's
Form 20-F report and Form 6-K reports filed with the US Securities and Exchange
Commission. Marconi disclaims any obligation to publicly update or revise these
forward-looking statements, whether to reflect new information or future events
or circumstances or otherwise.
Sensitised Business Plan
Marconi's Sensitised Business Plan, as published on 29 August, has been refined
as part of the Group's ongoing forecasting process. As described in the 29
August announcement and the Q2 trading update announcement of 22 October, the
Group's Sensitised Business Plan was based on the Group's Business Plan
forecasts prepared in April 2002, to which a set of sensitivities were applied
to reflect the scenario of more difficult market conditions, and in particular,
a delay in market recovery beyond the end of 2003 as assumed in the Business
Plan.
The financial projections in this plan remain materially the same as those of
the Sensitised Business Plan published on 29 August, although there have been
modest reductions to EBITDA and operating cash flows (principally in 2004) as a
result of refinements regarding the timing and the realisation of the benefit
from the numerous initiatives being undertaken to improve gross margins and
operating expenses. The following is a summary of the forecasts split between
the Rest of World businesses (Core and Capital excluding the US businesses) and
the US businesses (the equipment and services activities of Outside Plant and
Power ("OPP"), Broadband Routing and Switching ("BBRS") and North American
Access ("NA Access")):
(GBP millions)
Year-ended 31 March '04 '05 '06 '07
Sales
Rest of World 1,750 2,027 2,234 2,397
US Business 542 627 721 791
----------- ----------- ----------- -----------
Total Sales 2,292 2,654 2,955 3,188
Gross Margin
Rest of World 431 573 664 733
US Business 187 236 284 320
----------- ----------- ----------- -----------
Gross Margin 618 809 948 1,053
EBITDA
Rest of World 116 238 284 328
US Business 82 104 131 165
----------- ----------- ----------- -----------
Total EBITDA 198 342 415 493
Operating Cash Flow
Rest of World (13) 137 194 246
US Business 40 69 112 140
----------- ----------- ----------- -----------
Total Operating Cash Flow 27 206 306 386
Cash to be Retained by the Group Immediately Following the Restructuring
As stated above, Marconi expects the Restructuring to be completed by no later
than 15 March 2003. The tables below show projected financial information for
the Group as at 28 February 2003, being the closest month end date to the
expected date of completion. There is not expected to be any material difference
between the balances at the end of February and the balances at 15 March 2003.
Since the 29 August announcement, the Group has refined the projected cash it
will need to retain after the Restructuring for the purposes of working capital,
funding to breakeven and other restricted cash requirements. The expected cash
balance retained has been increased from GBP635 million to GBP724 million,
mainly to allow for:
- GBP25 million of additional expected net cash out flows to
breakeven, including part of the GBP36 million of gross annual
interest payable on the Senior Notes;
- GBP39 million additional cash retained for working capital needs
of the Core business, including global working capital; and
- GBP25 million additional provisions for cash collateralisation
of existing bonds.
The cash balances as at 28 February 2003 will therefore be retained for the
following purposes:
(GBP millions)
Projected net cash outflows to breakeven
(including net interest payable) (note 1) 40
Global working capital (note 2) 113
Cash in transit (note 3) 30
Working capital retained for Core business (note 4) 196
Cash collateralisation of performance bonds (note 5) 175
Retention for cash to be paid out re. Employee
Share Option Scheme (note 6) 170
--------
724
Note 1: Net Cash Outflows to Breakeven
Cash retained by the group to fund the business to its breakeven point. This
figure includes gross interest payable on the Senior Notes of GBP36 million per
annum. Gross cash outflows are shown net of proceeds (GBP76 million) forecast to
be received after 28 February 2003 from certain identified asset disposals in
the period to breakeven.
Note 2: Global Working Capital
It is estimated that approximately GBP113 million of cash is generally held at
subsidiary levels and within joint ventures within the business as working
capital for the worldwide operations of the Group.
Note 3: Cash in Transit
Normally, and hence also upon Restructuring, it is estimated that approximately
GBP30 million of cash will be in transit and therefore not available for
distribution.
Note 4: Working Capital Retained for Core Business
GBP196 million of cash will be retained for the working capital needs of the
Core business. Working capital requirements include the funding of normal
working capital swings which are the result of timing differences between
receipts and payments, additional provisions for known and unknown contingent
liabilities, as well as trading sensitivities to meet working capital
requirements. It has also been assumed that Marconi will have access to US
working capital facilities in an amount totalling approximately USD45 million
(approximately GBP30 million).
Note 5: Cash Collateralisation of Performance Bonds
During the period prior to the Restructuring, certain new performance bonding
agreements entered into by Marconi have been structured on a cash collateralised
basis. It is not anticipated that this cash will initially be available for
distribution. In addition, a number of the Group's performance bond arrangements
carry rights for the issuer to call for cash collateral, either unconditionally
or upon the occurrence of certain events. The GBP175 million of cash retained
with respect to performance bonds includes GBP55 million to be held in escrow to
fund potential calls for collateral under these bonds. In addition, up to GBP25
million of the GBP175 million will be held to cash collateralise bonding under
the new facility when available. Marconi expects to obtain a performance bonding
line of GBP50 million to facilitate the Group's new bonding requirements.
Note 6: Retention of Cash to be Paid Out in Relation to Employee Share Option
Scheme
Retained pending the settlement of potential liabilities in relation to the
Group's prior ESOP hedging arrangements.
Cash Movement
The table below outlines certain projected cash movements in the period between
30 September 2002 and the expected post restructuring cash balance of GBP724
million in order to provide additional detail on projected uses of cash during
that time period:
(GBP millions)
Cash balance at 30 September 2002 (note 1) 1,084
Repayment of other bilateral indebtedness (27)
Projected operating expenditures, exceptional restructuring costs, (154)
working capital movements and other disposals
Projected net interest payments (14)
Projected cash distribution to creditors (165)
--------
Pro forma cash balance at Restructuring (as at 28 February 2003) 724
Note 1: Cash balance at 30 September 2002
The balance includes GBP13 million relating to buyer retentions of disposal
proceeds, classified as a short-term asset in the Interim financial statements.
Lockbox Balances
In addition to the information provided to creditors in relation to the general
cash balances and cash movements, further information has been provided
regarding the cash balances held in the lock-box over which security has been
provided to the bondholders, Syndicate Banks and certain ESOP counterparties.
This information shows that there continue to be substantial cash balances held
in the lock-box (for the purposes of funding operating and exceptional cash
flows and any calls for cash collateral in relation to performance bonds) and
that the outflows in the period to the Restructuring are being managed as
tightly as possible.
The table below sets out the revised forecast lockbox balances against which
requests for withdrawals by Marconi are assessed by the creditors and their
advisers.
(GBP millions)
30 September 2002 (actual) 735
31 October 2002 (actual) 743
29 November 2002 (actual) 749
31 December 2002 663
31 January 2003 618
28 February 2003 582
ENDS/...
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MARCONI PLC
By: ____M Skelly____
Name: M Skelly
Title: Secretary
Date: 16 December 2002