Eircom 'may breach terms of its loans'
Eircom Group said it may breach the terms of its loans as the country’s austerity measures imposed to combat the collapse of the banking system forces consumers to cut spending.
The company, which has to service €3.15bn of debt used to fund its buyout by Temasek Holdings Pte Ltd, is assessing its options, Eircom’s Chief Financial Officer Peter Cross said on a conference call today.
“We have positive headroom as of September, so it is something we have some time to deal with,” said Cross, who reiterated he’s confident Eircom can avoid default with an equity injection or by renegotiating the covenants with lenders.
The crisis in Ireland’s economy and banking system has magnified the effect of increased competition in voice and mobile services.
Declining revenue has combined with “high” debt levels to push the company close to a covenant breach, the company said in a statement.
Eircom’s loan covenants may be violated in the next 12 months if no action is taken, the company said.
“You’ve got the decline of the traditional incumbent from competition, combined with the Irish economic downturn,” said Jonathan Moore, an analyst at Evolution Securities in London.
“That’s all been mixed up with an inappropriate capital structure with too much debt for a business like this.”