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Bondholders stand firm to cap Digicel savings at $1.6bn

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Digicel chairman Denis O’Brien

Digicel chairman Denis O’Brien

Digicel chairman Denis O’Brien

DIGICEL has called time on efforts to convince bondholders to accept a debt deal - meaning its debt write-off will be capped at $1.6bn.

A group of bondholders owed $925m (€844m) that falls due in 2023 baulked at the deal by an extended deadline on Wednesday in New York, but the overwhelming majority of lenders to the telecoms company have agreed to swap their bonds for a smaller amount of new IOUs.

Lenders backed the deal despite suffering significant 'haircuts' because any likely alternative, potentially including liquidation, would have resulted in a smaller recovery on their investment.

That makes it a "distressed debt exchange" which rating agency Moody's regards as a default event. Although this is a consensual restructuring, that assessment does not impact the borrower - it may mean some lenders can recoup insurance against default via credit default swaps, a type of financial derivative.

Having secured the backing of most of the bondholder group that means that the wider restructuring will proceed around the 2023 bonds.

The Supreme Court in Bermuda last week sanctioned the scheme of arrangement that will give effect to the process and that was recognised by a US court on Wednesday under Chapter 15 of the US bankruptcy code - which means the Bermuda deal cannot be challenged later in the US where Digicel bonds are issued.

The debt exchange is now expected to take place in June - when the bulk of Digicel's bonds will be surrendered and cancelled and the new, smaller, amount of debt will be issued.

Digicel's debt will be cut from $7bn to $5.4bn as a result of the debt exchange.

The company issued an ultimatum to lenders in April, saying its debts were unsustainable without a reduction.

Digicel founder and chairman Denis O'Brien will contribute $50m of assets and retain control of his telecoms empire.

Holders of the 2023 bonds will be owed the full amount - and will benefit from the debt reduction taken by holders of other grades of bond.

Irish Independent