Telewest, the debt-laden cable operator, has reached a financial restructuring agreement which will see bondholders taking control of 97% of the company in return for cancelling �3.5bn ($5.4bn) worth of debts.

The remaining 3% of the company will be held by existing shareholders.

The agreement is the first stage in Telewest's restructuring and follows the group's decision earlier this year to cut 1,500 jobs in a bid to save �600m a year.

Managing director Charles Burdick said the announcement "marks an important first step towards completing a financial restructuring that carefully balances the interests of all stakeholders".

Merger on the horizon?

Telewest's move follows that of a number of other telecoms firms who have also swapped debt for shares in the company.

NTL, for example, the largest UK cable company, has already exchanged nearly $11bn (�7bn) in bonds for new shares as part of a recapitalisation programme.

Telewest's refinancing proposition depends on the approval of its stakeholders.

These include banks which are owed �1.8bn ($2.8bn) and major shareholders including Microsoft and the US cable investor Liberty Media.

There have been suggestions that once NTL and Telewest are both free of their debt burdens, the two companies will merge.

Liberty Media, run by cable tycoon John Malone, owns about 9% of Telewest's bonds and 25% of its equity, and has been suggested as a potential buyer of both companies.