Tesco Mobile breaches £600m debt facility after reporting failure
The UK’s biggest virtual mobile network operator has breached the terms of its debt facility after a reporting shortfall, City PM can reveal.
Tesco Mobile, which has more than 5m customers and is owned by Virgin Media O2 and Tesco, identified a breach in covenants in the funding agreement it has with the Royal Bank of Canada, which is used to finance mobile devices and network contracts.
The company’s finance arm, which arranged the facilities, said the breach has been waived by the lender and is “no longer considered” an event of default.
A spokesperson said the error was a “minor administrative issue” relating to reporting requirements, adding that the company identified and self-reported the issue.
Tesco Mobile did not respond to a request for further detail on the nature of the reporting breach, which is understood not to have any relation to the financial health or position of the business.
Following the breach, in April Tesco Mobile extended its debt financing arrangements, increasing the amount borrowed from £485m to £600m and extending the maturity date to 2033.
Tesco Mobile, Tesco’s telco arm, was founded in 2003 and has since grown to be a major player in the industry. The company is a virtual network operator, relying on the O2 network as its carrier rather than its own mobile infrastructure.
In its latest accounts, the firm posted revenue growth of 4.7 per cent to £1.1bn, turning around a prior year loss to deliver a profit of £1.2m.
“Market pressures and changes in customer behaviour saw a decline in prepay, partially offsetting postpay growth leaving the total closing customer base at 5.7m,” the company said.
Tesco Mobile’s joint owner, Virgin Media O2, itself has debt and lease obligations of £22.4bn, of which £8.6bn is due before 2031. In May VMO2 reported a 3.8 per cent drop in customer revenue, which it put down to the “impact of prior-year customer reductions, and ongoing competitive pressure in the consumer fixed market.”