Eircom investors await results to make call on firm's debt risk
A senior credit market analyst believes the majority of debt investors in Eircom are waiting for the company to deliver its quarterly results in August before forming a view on whether the telco is likely to breach debt covenants either by late this year or in 2011.
It emerged yesterday that one group of bondholders has hired specialist US investment bank Houlihan Lokey Howard & Zukin to advise them on their options in relation to their debt holdings in Eircom, which is now controlled by Singapore Technologies Telemedia (STT).
Eircom has almost €3.3bn in debt and concerns have been raised that the company may be getting close to the ceiling on some of its covenants, raising the prospect that the company will have to negotiate with its senior debt holders to reformulate those covenants.
Speaking on condition on anonymity to the Irish Independent, the market analyst said one of the issues facing Eircom's debt holders is that STT's intentions in relation to the telco haven't been made clear. STT has maintained that it is a fully committed long-term investor in Eircom, which it formally gained control of earlier this year.
Another high-yield debt strategist, Jonathan Moore of Evolution Securities, said there is a "sense of inevitability" about the covenant breach.
While it's believed Eircom is examining its debt structure, the telco has remained relatively silent on such moves. Eircom is understood to have hired JPMorgan and London advisers Gleacher Shacklock to advise it on its financial strategy.
In May, Eircom chief financial officer Peter Cross said the company had adequate headroom on its covenants and was not in danger of breaching them.
"We are not about to do any type of debt-restructuring," he said at the time. "Eircom held cash of €265m at the end of March. We have positive headroom on our covenants and we are servicing our debt fully."
Earlier this month, ratings agency Standard & Poor's downgraded Eircom's debt, saying the company didn't have "any specific measures" to deal with it. It claimed the telco could breach covenants next year.
"We believe that headroom under one specific covenant will considerably shrink in June 2011 and entail the risk of a breach in September 2011 or December 2011,'' said an S&P analyst.