Fears over Eircom's €1bn debt pile spark bond slide
Price tumbles over reports company is seeking 'haircut'
Published 17/06/2011 | 05:00
EIRCOM'S bonds plunged in the secondary market yesterday over reports the company could try to renege on €1bn of debt.
The price paid in the markets for a €350m slice of floating rate notes (FRN) fell from just under 30pc of face value to the low 20s traders said.
It came after two sources told the Bloomberg news service that Eircom could seek haircuts on its subordinated debts -- including the FRNs and a €343m bigger slice of even lower ranked payment in kind (PIK) notes.
Second-lien loans -- which sit between the senior and subordinated debt -- could be offered shares in the company in exchange for their loans, the source said.
The most senior Eircom debt, running to €2.36bn, is probably safe from any haircut because imposing losses there would risk handing over ownership of the company to its banks. The most vulnerable debt to losses is the PIK debt, which is unsecured and was issued by a shell company that has no assets.
A spokesman for Eircom said the company has not yet sat down with lenders and no discussions are ongoing yet. In fact, after weeks of discussions, the company and its most important lenders still haven't finally agreed the terms of engagement.
So far only the senior lenders have been invited to talks, which are set to start within days. However, the company is unlikely to go into negotiations without a plan to cut its debts and efforts may well be under way to soften up junior lenders for a tough first offer.
The Bloomberg report said Eircom has cut its earnings forecasts from €600m to €550m. The company has already said the earnings are falling quickly.
Eircom has hired investment banks to advise it on restructuring its debt and the earnings figures are crucial in determining how much debt a company can service and ultimately pay off.
Eircom is two-thirds owned by Singapore based by Singapore Technologies Telemedia (STT), and the employees own the rest of the company.
Both owners are likely to be asked to put in fresh cash to retain their stake under any scheme that hurts lenders.
In May the company said it has plenty of cash to meet its interest payments as they fall but admitted its debt burden is too big for its business to manage in the longer term.