Eir ramps up debt to fund bigger dividend
EIR is set to ramp up borrowing by more than planned in order to pay a bigger dividend to shareholders – including French billionaire Xavier Niel.
Eir has increased a planned debt financing to €1.15bn from an initial €850m tapping into keen appetite from European debt investors. Adding to existing debt, it could push Eir’s overall borrowing towards €2.75bn, depending how much outstanding loans are reduced using the new facilities.
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The bulk of debt being raised is to refinance an existing €700m debt facility falling due in 2022. The company also initially intended to disburse €300m in a special dividend to two of its four shareholders using a mix of new debt and cash on its balance sheet.
But demand for the new debt – a mix of senior secured notes and loans – was strong enough to allow Eir to borrow more and as a result to make a bigger dividend. As well as more cash for shareholders some of the €1.15bn now being raised will be used to reduce the size of a corporate term loan.
French telecoms provider Iliad and its founder and main shareholder Mr Niel between them have a 64.5pc stake in Eir, bought last year in a deal that valued the business at €3.5bn. The balance of the equity is owned by Anchorage Capital and Davidson Kempner Capital Management.
Even after increasing the amount to be borrowed Eir is set to pay a lower interest than it had initially expected. The new debt structure is a mix of €400m of loans with a 3.25pc interest rate and €750m of bonds yielding 3.5pc
Initial guidance suggested Mr Niel and Iliad would not share in the debt-funded dividend, but Bloomberg reported yesterday they will now take a slice of the bigger payout.
Eir’s debt-funded dividend has invoked memories of how a series of previous owners ratcheted up debt in deals that eventually resulted in the former Eircom’s insolvency in 2012.
At the High Court in 2012, Mr Justice Peter Kelly called the preceding cycles of borrowing and new owners at Eircom a “corporate game of pass-the-parcel” in which “the parcel lost”.
Mr Niel gained control of Eir last year – its ninth change of ownership in the past two decades.
The French telecoms entrepreneur acquired 64pc of Eir via Iliad, the French telecoms group he controls and NJJ, his personal investment vehicle.
Eir has not commented on the dividend plans which were initially revealed by rating agencies Moody’s and Standard & Poor’s in notes to debt investors.