Eircom most likely borrower in world to default on debts
Eircom is the riskiest large-scale borrower in the world, according to bond market data.
Prices in the credit default swap (CDS) market show that Eircom is considered most likely to default on its debt of any name in the CDS market. Investors think Eircom is more likely to default than Greece, according to the market prices.
Despite the risk of being hit with losses, bond traders say even some of the riskiest Eircom debt is still being traded.
The cost of insuring Eircom's corporate bonds debt increased by 8.46pc last week and is now the highest in the world of any big corporation or country.
In theory, the mismatch between the amount of cash Eircom takes in through sales and the amount it owes is so bad it should be allowed to walk away from a proportion of debt.
Under UK or Irish law, Eircom could be able to walk away from up to €1bn of its debt if that means the remaining assets can be saved -- that's if the least at-risk lenders think a deal is acceptable. But debt markets sources told the Irish Independent that even more vulnerable bonds were still being traded -- some for as much as 30c.
That's because hedge funds are betting the company's corporate structure is so complicated they'll end up being paid off just to stop them being a nuisance when the company does go through a debt restructuring.
Eircom has multiple layers of debt issued under a plethora of legal contracts. Most of its €2.7bn of debt are "senior loans" with a relatively low risk of suffering losses. There is another €1bn of bond debt seen as very risky by the markets. As well as a variety of debts, Eircom's structure crosses a plethora of global borders -- even though its business is all in Ireland.