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Telecom bondholders offered fee to approve de-merger

Holders of Telecom's $541.7 million in listed bonds are being offered a one-off “consent fee” of 0.25% to vote in favour of the spin-off of its lines business Chorus into a separate company.

Tuesday, September 13th 2011, 10:53PM

by Jenny Ruth

Standard & Poor's and Moody's Investors Service have already said a direct consequence of the de-merger will be a one notch downgrade of Telecom's current "A" rating (on the S&P scale) to "-A" for "new Telecom."

Bondholders will remain debt holders of "new Telecom" while "new Chorus" will be rated "BBB" by S&P and "Baa2" by Moody's.

The bondholders will vote on the de-merger on September 30, ahead of the vote by Telecom shareholders scheduled for November 14.

The "consent fee" will be paid only to those bondholders voting in favour and only if the vote succeeds.

Independent expert Grant Samuel has concluded the proposed separation is in the best interests of bondholders.

If bondholders don't vote in favour of the separation, "it is unlikely that the proposed separation will proceed," Grant Samuel says.

If Telecom proceeds with the separation without the trustee's approval - trustee, Guardian Trust, has said it won't approve the de-merger unless bondholders vote in favour - "the trustee could declare and event of default under the trust deed and demand repayment of principal and interest due" the bondholders, Grant Samuel says.

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