Eircom parent hit with downgrade as outlook for telco deteriorates
Published 23/12/2011 | 05:00
RATINGS agency Moody's yesterday downgraded the parent company of Eircom, as the problems surrounding the telecoms company deepened.
Moody's Investor Services last night said it cut the family rating of ERC Ireland Finance Ltd (ERCIF) to Caa3 from Caa2 and the "probability of default" rating was lowered to Ca from Caa3.
Moody's vice-president Ivan Palacios said the downgrades came amid "concerns the potential recovery prospects for Eircom's creditors could be lower than previously anticipated by the rating agency, owing to the continuing macroeconomic weakness in Ireland and the deteriorating outlook for the business".
Eircom has been in talks to restructure its €3.7bn debt for months and is in danger of being taken over by its lenders. The company has received an extension of the covenant waiver for its breach of a senior debt/EBITDA covenant until the end of January.
Among the Eircom securities downgraded yesterday were €350m worth of senior unsecured notes due in 2016 which were reduced to C from Ca, while ERC Ireland Holdings Ltd's (ERCIH) €350m second-lien term loan was cut to C from Ca.
ERCIH's €3.3bn senior secured facility has been downgraded to Caa2 from Caa1. All these now have a negative outlook.
The "weak underlying fundamentals of the Irish economy and the low visibility of an economic recovery over the near-to-medium term" are also feeding into a "deteriorating operating performance" for telecoms like Eircom as is the increased competition in the sector, Moody's added.
"In fact, Eircom's estimated results for the month of October 2011 as disclosed publicly by the company show a significant decline in performance compared with the corresponding periods in 2010.
"Moody's would expect Eircom to report a continued decline in EBITDA in the coming 12 months," it claimed.
Earlier this month, Eircom said it experienced a "significant reduction" in performance during October, but insisted the decline was in line with expectations.
"Lower consumer confidence and competition in these consumer and small-business segments are putting continued pressure on fixed-line and mobile average monthly revenue per user," Eircom noted.
The company said decline in its revenues in October had been largely balanced by continued cost savings, with operating costs during the month lower than expected.
"There are some early signals that consumer confidence continues to weaken performance and may result in some emerging trends that could impact the existing budget," it warned.