By Ahmad Hathout
Xplore underestimated how much capital it would need to build out its fibre network before it was granted creditor protection this week to restructure the business, according to court filings.
“At the end of the day, the business they are operating in required more capital funding than they had planned for,” noted an Ontario Superior Court of Justice endorsement, based on filings by the insolvent company. “With the benefit of hindsight, they had insufficient cushion to absorb the knock-on effects of unexpected delays in the build-out of the fibre network that delayed the onset of consumer revenue and the receipt of the bulk of promised government funding whose terms condition payment of the bulk of such funding upon completion of the work.”
Also contributing to Xplore’s problems is the competitive environment, the endorsement continued, namely the rise of satellite internet alternatives including Space X’s Starlink, which is soon to be joined by Amazon Leo; and the regulatory environment that “makes monetizing some of Xplore Group’s assets such as spectrum difficult in any short time frame.”
The completion of Xplore’s subsidized fibre network projects is expected to unlock approximately $250 million in government reimbursements, the filing stated. The company, which said it has spent $360 million on these projects to date, estimates that it is 65 per cent complete with more than $180 million in additional investments yet to be completed on the builds.
But the company needs more money to get there. On Tuesday, the Ontario Superior Court of Justice granted the company protection from its creditors after it proposed a way out of its liquidity crisis — at least for now.
Under the proposed agreement, a group of Xplore’s shareholders will provide, on a superpriority repayment basis, USD$154.5 million in total financing with initial advances of $77 million during the stay proceedings. The terms are subject to final court approval when the parties reconvene for a hearing on November 19.
Xplore will have the right, according to the Nov. 10 court order, to “permanently or temporarily cease, downsize or shut down any of their business or operations, and to dispose of redundant or non-material assets not exceeding $1,000,000 in any one transaction or $3,500,000 in the aggregate; terminate the employment of such of their employees or temporarily lay off such of their employees as they deem appropriate; and pursue all avenues of refinancing of the Business or Property, in whole or in part, subject to prior approval of this Court being obtained before any material refinancing.” The court-appointed monitor is FTI Consulting Canada Inc.
In a Tuesday press release, Xplore said it will be business as usual for subscribers and clients, including vendors and suppliers, which will be “paid for all goods and services provided to Xplore on or after the date” of the Companies’ Creditors Arrangement Act (CCAA) filing.
“We are looking forward to working collaboratively with our partners and stakeholders to reposition our fibre deployment projects to continue the very important work ahead of us,” Xplore CEO Brent Johnston said in the release. “We intend to emerge from CCAA in a stronger position, so we can continue to build reliable high speed fibre internet for Canadians living in rural and remote communities.”
Paying suppliers was an issue for Xplore the last time it found itself in this situation, according to court records. In 2024, satellite providers Telesat, Hughes, and ViaSat sought to terminate services to Xplore for what they alleged were millions of dollars in monthly payments that were in arrears. Hughes had even sought to bring bankruptcy proceedings against Xplore.
The satellite companies, however, had their hands tied because Xplore had obtained an Ontario court order that stayed any actions against it as it looked to right the debt-ridden ship. Later that year, Xplore secured new financing to continue its pursuit of the fibre build by 2027.
But Xplore has not been able to make interest payments on two 2024 credit agreements when those payments came due on October 30, 2026 and November 4, 2026, according to court records. One of those loans, worth $50 million, is proposed to be paid off in full using the $77-million advance that Xplore now has available to it.
“The preservation and continuation of the Xplore Group’s spectrum licences and its project agreements with government partners relating to the Company’s fibre-build projects are critical to the long-term value of the Xplore Group, and any termination or enforcement steps in respect of such assets could adversely affect business operations and destroy value to the detriment of the Company and its stakeholders,” the company said in a Tuesday filing to the court.
Xplore said at the time of the 2024 court order that a suspension of proceedings against it would allow it to continue providing full service while it negotiated a recapitalization structure, which was intended to reduce its debt and annual cash interest expenses, while providing the cash flow and flexibility to build out its fixed wireless, wireline and satellite businesses to satisfy deadlines for connectivity, including roughly 1.5 million Canadian households and business locations that currently only have access to low speed or no wired broadband.
The framework and terms of that structure were agreed in principle with the lenders holding the majority of the debt obligations.
When New York-based private equity firm Stonepeak acquired a controlling stake in Xplore in 2020, the provider obtained financing under a $1.25-billion first lien term loan, which was used to repay its existing term loan and on capital expenditures and other costs.
In October 2021, a second lien credit agreement was entered into, which provided another $1.7 billion. That money was used to refinance the first lien term loan and to fund the business and its projects.
The money was taken under variable interest rates during a period of low borrowing costs, an affidavit at the time noted, but higher interest rates over the previous two years meant the business had become more costly to operate. To be precise: $166 million in interest charges in the period ending on December 31, 2023, according to the company. As such, Xplore missed interest payments due on both lien term loans in the amount of $44 million that were due in March 2024.
“Xplore Inc.’s capital structure and debt servicing costs are no longer sustainable, and are adversely impacting its ability to achieve its current and long-term business objectives,” an Xplore affidavit said at the time.
Xplore negotiated its way out of those defaults by offering an amount of secured debt, common shares in Xplore, rights to new equity issued by the company, and entitlements under a spectrum monetization plan in exchange for releasing its obligations.
As part of that strategy, in November 2023, Xplore transferred some assets in its fibre and fixed wireless businesses to an indirect subsidiary called Xplore Fibre L.P. The idea was to separate those assets from encumbrances – i.e. the debt – and allow it to raise money against it to fund the fibre business and stabilize the company’s balance sheet.
