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Is Virgin Media struggling?

While there has been some concern about the high levels of debt with Richard Branson's Virgin Media operation, today's announcement of a refinancing should be well-received by investors considering the current economic climate. The company has been able to postpone repayment of £4.3 billion of debt until 2012 which gives it an extra three years to pay back the money. The group had been set to repay it just over £1 billion in 2010 and £1 billion in 2011 and the balance in 2012.

Times are not easy in the UK broadband sector where the economic downturn has reduced the opportunities to increase prices, seen costs rise and competition increase. Virgin Media is still number two in the sector just behind British Telecom although with BSkyB's reported interest in the Tiscali UK broadband operation there could be further competition ahead.

The refinancing will see banks receive £70 million in fees and a further £50 million a year in increased interest payments. This will give Virgin Media more breathing space and allow the operation to accommodate the current economic climate at the same time as looking ahead to the future and an upturn in the worldwide economy. On the surface this may seem like a very expensive operation but it actually makes good business sense and the fact that the refinancing has happened shows the underlying strength of the company.

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