Eircom will talk with lenders to secure covenant-waiver consent
Eircom is ready to start talks with senior lenders as it seeks a "waiver" of some of the conditions of its loans.
The news came as Eircom managers met lenders yesterday and presented downbeat financial projections for the coming year at a meeting in London.
Eircom has debts of €3.75bn and is at the start of a process to "restructure" the debt, probably by writing off some unsecured bonds. Eircom is expected to breach the terms of its debt when they are tested and the results are published at the end of August.
The terms, or covenants, include strict rules setting out the minimum ratio of corporate earnings to total debt allowed at the business. Earnings at Eircom are falling sharply while debts are declining gradually.
Yesterday, Eircom confirmed for the first time it may seek the waiver consent.
"The company will commence discussions" to secure the waiver, "which may be required should a covenant breach occur", Eircom said.
Earnings in the year to the end of June 2012 would be "materially lower" than earlier figures indicated, it added.
Eircom's shareholders could "cure" a covenant breach by investing fresh cash into the business in order to massage the earnings data.
Sources away from the company said shareholders could need to invest about €100m just to bring the firm into line with the loan conditions.
It is an unattractive option because it means paying in cash without getting any concessions from debt holders in return.
A source among the most senior lenders said shareholders did not need to go down such a drastic path, at what he regarded as an early stage in the proceedings.
He said many lenders were willing to grant a temporary waiver without seeking any cash commitment -- in exchange for a greater role in debt negotiations.
In order to secure a waiver, Eircom needs the support of two-thirds of senior lenders.
If they do grant a waiver, lenders want it to be temporary -- a matter of months at most.
The short-term option means they can maintain pressure on shareholders to pump a bigger amount of cash into the business in exchange for lenders consent to write off debt sitting below them in the capital structure.
Most senior lenders want the company to cancel about €1bn of unsecured debt. It sits below them in the capital structure, meaning it is less-well secured.
If a judge in Britain can be convinced there is no realistic hope of repaying all €3.75bn of debt, then it can be cancelled through a court process.