Eircom's biggest lenders face battle to recover debts
Published 05/10/2011 | 05:00
EIRCOM'S biggest lenders face a tougher battle than had been expected to prevent other lenders sharing in any payouts or a stake in the business that is handed over as the result of a restructuring.
The company is in talks with its most senior lenders in an effort to "restructure" its unsustainable €3.75bn debt burden. The most senior 'first-lien' lenders are owed €2.36bn.
They have the best-secured of Eircom's €3.7bn of outstanding loans and bonds and are the only lenders with a seat at the talks table.
Now, however, it has emerged that contracts which were put in place when Eircom borrowed the money in 2007 do not include a key clause to set out rules for cancelling the claims of some lower-down creditors in the event of any restructuring.
This will make it harder for senior lenders to reach a deal with the company without having to offer the other lenders a share in the proceeds.
A 'security release' clause is normally part of the inter-creditor loan agreement that sets out the relationship between each class of lender when big corporates borrow money.
It includes conditions to be met before any lenders' claim can be cancelled, but also acts as a key protection for senior lenders because it features tools to make sure that they are last in line to suffer a loss if a company cannot repay all of its debt.
The Eircom loan contracts do not include such a clause, legal sources involved in the case have confirmed to the Irish Independent.
It means Eircom's first-lien loans and a group of second-lien lenders who are owed €350m both have claims that are secured on the company and its assets.
A report in 'Capital Structure' -- a specialist debt-market news service -- said that after discovering the absence of the clause the senior lenders were now getting up to speed on Irish examinership law.
Senior lenders to Eircom are confident that they stand to be repaid most of what they are owed, even if it ends up in court.
Talks on restructuring Eircom's debt got under way earlier this month. Most of those who are involved think "restructuring" is likely to mean an attempt to write off €1.3bn of the company's least well-secured debt.
Eircom's owners will only able to retain control if they can come up with around €300m to support the company.