Eircom has fifth riskiest debt levels in the world
Published 21/06/2010 | 05:00
Eircom is now the fifth riskiest company in the world in terms of the chances it will default on, or restructure, its debt, bond market data shows.
The cost of insuring some forms of Eircom debt is now the fifth most expensive in the world. The cost has been surging this year and spiked alarmingly in May, around the time of the company's last quarterly results.
Analysts of the company have expressed disappointment at the lack of detail on how it plans to service and reduce its debt load which amounts to €3.5bn. Some bondholders are reported to have appointed advisers.
The company's debt is held through ERC Ireland Finance Limited, which has denied market suggestions that a restructuring, or even a default, is on the cards. But the market appears to take a different view based on credit default swaps (CDSs) for the company.
These show that only debt belonging to Belgian directories publisher Truvo; US bond insurer Ambac Financial; Japanese consumer-loans company Takefuji; and New York-based insurer MBIA cost more to insure than Eircom.
CDS spreads are a key indicator of financial stress and market concern over the sustainability of a company's debt load. Eircom, which is ultimately owned by Temasek Holdings of Hong Kong and an Employee Share Ownership Trust, has only said it is considering ideas for altering its capital structure.
"The company retains a strong cash balance and positive headroom in servicing its debt,'' it said in May when announcing its nine-month results to March 31.
While claiming that it had "headroom'' to service its debts, the company embarked on a major cost-cutting drive and slashed a €407m pension deficit.
The company remains the largest provider of fixed lines in Ireland and has 703,000 customers, but both fixed-line and mobile-phone revenues have been falling. Debt levels, meanwhile, remain high and Eircom is believed to be the most highly geared telco in Europe.
The majority of the debt falls more than five years from now, giving Eircom some leeway. However, much of the debt has been downgraded and is trading well below par value in the secondary market.
The company is actually guaranteeing "indebtedness'' of €3.7bn, which comes in the form of a senior credit facility, a floating rate note and another revolving credit facility.