Thursday 22 February 2018

Eircom must set out business plan before talks on €3.75bn debt deal

Donal O'Donovan and John Mulligan

MANAGEMENT of Eircom will need to present a definitive business plan before lenders can properly engage in negotiations on restructuring its €3.75bn of debt, sources told the Irish Independent last night.

The plan will clarify how much debt the company can sustain long term and provide the basis for renegotiation, including writing off some bonds, the sources said.

Management yesterday confirmed that it is working with financial advisers JPMorgan Chase and Gleacher Shacklock to come up with a long term financial strategy.

One of the advisers told the Irish Independent that the strategy will include asking lenders to agree to write off some of the company's debt.

That would be a precondition for shareholders Singapore Technologies Telemedia (STT) and its employee share ownership trust (ESOT) injecting up to €300m into the business. The cash would put the company on a sound financial footing, benefiting remaining lenders.

Holders of €600m of unsecured payment-in-kind notes, which are the most junior form of debt at Eircom, face being wiped, the source said, adding that more senior bondholders could also have to shoulder some losses.

The most senior "bank" lenders will not have to share the pain, a number of people involved pointed out.

A group of the most senior lenders have formed a committee to negotiate with the company. IFSC-based funds Harbourmaster and Avoca have joined forces with Blackrock, Alcentra and Deutsche Bank. Harbourmaster is Eircom's biggest lender.

A source at one of the five funds told the Irish Independent that they will seek an independent business review (IBR) of Eircom in addition to seeing figures from the company before accepting any deal. That could cost up to €1m and would be resisted by the company, a second source said.

One of the lenders said there is no threat to Eircom's staff or customers from the negotiations which will only focus on the debt. He said the business remains profitable and continues to generate cash.


Speaking as the company released second-quarter results yesterday, Eircom chief executive Paul Donovan said that preliminary talks with lenders will commence either this month or in April.

He said negotiations with the Trade Union Alliance-- which primarily includes members of the Communications Workers' Union (CWU) -- on further cost-cutting should yield proposals by the end of this week that can then be put to union members.

In the three months to the end of December, Eircom's revenues fell 6pc to €438m, while adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) declined 3pc to €154m.

Fixed-line EBITDA rose 7pc to €145m due to lower pay related and other costs. EBITDA at its mobile business, including Meteor and Emobile, sank 60pc to €9m.

Speaking to the Irish Independent, Mr Donovan stressed that the talks commencing this month or next are preliminary. He declined to be drawn on the possible consequences for bondholders if an equity cure is initiated.

"What we've done is acknowledge that there is a significant risk, depending on trading conditions, that the group might breach its financial covenants," the Eircom chief said, adding that talks with bondholders and shareholders would run in tandem.

"I think it's quite difficult to pre-judge the outcome of either sets of discussions. There's no view from the company as to what the outcome or preference might be."

Irish Independent

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