Eircom tight-lipped over report it may opt for examinership
EIRCOM last night refused to comment on reports it could seek an examinership if efforts to find an agreed solution to its debt crisis fail.
It comes after a report on the news service Capital Structure that said Eircom was "assessing the pros and cons of an examinership" if talks with lenders owed €3.75bn fail to come up with a plan for the company.
According to the reports, a source close to the company said examinership could be an option if Eircom could not reach agreement with lenders and shareholders on how to restructure its €3.75bn of debt.
In spite of the report, most people in the market, including lenders to the company, think an examinership for Eircom is highly unlikely and the report says it was regarded as a last resort.
A source among the senior lenders to Eircom said the company could write off some debts through a less disruptive and more predictable process in the English courts, if it needs to cut the total amount owed without paying off lenders.
There is wide agreement that the company does need to write off some debts. Eircom's income is falling sharply while its debts are going down very slowly over time -- the company itself has admitted that this casts a big doubt on the ability of the business to pay back the loans in full.
Eircom's corporate lenders agree the debts are too high for the company to sustain but it has a complicated debt structure and lenders at each level of debt think the cut should hurt lenders below them in seniority.
Sources among the lenders that spoke to the Irish Independent said they don't think examinership is the right process to "right size" the debt burden, not only because it is unpredictable but also because the regime in the UK explicitly favours lenders.
While Eircom is an Irish company, its corporate debt is issued through holding companies in Luxemburg and the Cayman Islands. The debt contracts are written under English law. It means Eircom could qualify to use the English system with little difficulty.
Lenders think a "scheme of arrangement" through the UK courts is a better option than an Irish examinership, mainly because it would involve less bad publicity and because the parts of the Eircom group that deal with ordinary suppliers, customers and the all-important telecoms licenses would not be affected.
At the moment, the focus of the lenders is on the company's decision to seek a waiver for a possible breach of Eircom's covenant tests later this month.
Talks on agreeing to a waiver got under way this week and need to be finalised within the next three weeks or the company will be at risk of a technical default on its most senior debt -- even though it is up to date with debt repayments.
A formal request for the waiver is expected in the next week.
A spokesman for Eircom said lenders have now begun to receive their copies of an independent business review of the company prepared by accountants Ernst & Young in recent days.
The review was demanded by lenders after the company reported sharp falls in earnings in recent months and will provide the basis for talks aimed at reaching a debt settlement.