Eircom seals last-minute deal to avoid breach of debt covenants
EIRCOM has agreed a deal that should mean the company avoids breaching its debt covenants for the next three months -- giving it time to negotiate a debt restructuring with lenders.
The last-minute "covenant-waiver" deal was agreed late yesterday by the company and a co-ordinating committee representing its senior lenders.
The terms were posted to a wider group of around 200 lenders yesterday; they will vote on the proposal on or before September 13. A two-thirds majority is needed for the waiver to come into force.
A covenant breach would mean Eircom being in default on the loans, leaving shareholders in danger of losing control of the company.
Results of the covenant test are due on Wednesday, but the company has around two weeks' grace from that date before any action can be taken against it by lenders, allowing time for the syndicate to vote on the new proposals.
There is no danger of Eircom missing a debt repayment; the likely breach of the terms of its debt would come because falling income meant its earnings were no longer within agreed limits.
To secure the waiver, Eircom agreed to two main demands that had held up a deal before now. It will pay senior lenders a one-off fee of a half a percent of the total amount of senior loans for granting the waiver. With €2.75bn of senior debt that will cost around €13.5m.
The company also agreed to create a formal independent directors subgroup, made up of directors not associated with shareholders STT and the employee ESOT.
Their job will be to assess any debt-restructuring proposal or takeover approach received by the company -- including any deal involving current owners STT putting new money into Eircom to retain its stake.
Letters were posted out to the group of around 200 fund managers that hold the €2.75bn of senior Eircom debt.