Who takes the hit in Eircom buyout?
LAST week's announcement from Eircom that it had appointed investment bank Morgan Stanley to advise on a possible sale of the telecommunications company marks a major escalation in the high-stakes game of poker between the company's majority shareholder, Singapore-based ST Telemedia (STT), and its creditors, who are owed a total of more than €3.4bn.
STT, which acquired its controlling 65 per cent Eircom stake from Babcock and Brown for just $140m in 2009, is clearly playing hardball with Eircom's creditors.
Even when Eircom's cash on hand is taken into account, the company still owes a net €3.1bn.
With mobile phone traffic volumes having been decimated by the recession, Eircom's revenues fell by 11 per cent in the nine months ended March 2011.
This means that there is simply no way the company can support this debt burden.
Which means that the only question is -- who takes the hit?
First in the firing line are the holders of Eircom's €350m of floating rate notes. Any restructuring is likely to see them virtually wiped out.
Eircom's bank lenders, who have provided the company with a €3.2bn facility, are also likely to suffer a major haircut.
