Moody's cuts Eircom's credit rating as fears grow over revenue
Published 04/12/2010 | 05:00
EIRCOM could breach covenants on its massive debt pile even sooner than previously forecast if austerity measures and suppressed consumer spending accelerate revenue declines at the telco, ratings agency Moody's has warned.
Yesterday, the agency cut the corporate family rating at the telecoms group by one notch to Caa1 from B3 and also cut the ratings on €4bn worth of debt and debt facilities and placed them on a negative watch.
A Caa1 corporate family rating means that Moody's judges the affected group to be of "poor standing" and subject to very high credit risk.
The agency cut ratings on €350m worth of unsecured notes issued by ERC Ireland Finance, Eircom's indirect parent, and which are due in 2016, to Caa3. That's just one notch above the 'Ca' rating where Moody's ranks a company's obligations as "highly speculative" and likely to be in or near default.
The same downgrade also applied to a €350m second lien term loan. ERC Finance Ireland's rating on a €3.3bn senior unsecured facility was cut to B3 from B2, indicating a high credit risk.
"In Moody's view, Eircom will find it increasingly challenging to continue to reduce its cost base to adjust to the expected decline in its revenue," according to Moody's vice-president and senior analyst Ivan Palacios.
He added that a failure to maintain earnings before interest, tax, depreciation and amortisation at current levels due to a more rapid decline in revenue could accelerate the company's breach of covenants under its existing facilities.
"Moody's had anticipated this occurring in the quarter ended June 2011, but it could happen even sooner," added Mr Palacios. Rival ratings agency Standard & Poor's cut its credit rating on Eircom last month.
Last week, Eircom, which is majority-owned by Singapore Technologies Telemedia, reported that its group revenue fell 5.6pc to €442m in the quarter to the end of September.
Eircom chief executive Paul Donovan also warned that he foresees no pick-up in consumer spending in the near to medium term.