Saturday 24 February 2018

Eircom to ask lenders for waiver on debt test


Donal O'Donovan

EIRCOM is preparing to ask its senior lenders to agree to "waive" a test of the company's debt covenants, according to loan market specialists Capital Structure.

The waiver will be sought to avoid a potential breach of the loan conditions at the end of August.

Eircom has debts of €3.7bn, most of it owed to a group of "senior lenders" through very well secured loans. The balance of the debt comes in the form of lower ranked "second lien" debt, unsecured bonds and a chunk of very weakly secured Payment in Kind (PIK) notes.

Last night a source close to the senior lenders told the Irish Independent that seeking a waiver is a necessary step for Eircom.

The lender source said agreement on a waiver is a first priority because more substantive talks on Eircom's debt cannot go ahead before lenders have read and digested an independent business review, commissioned by the company at the request of lenders.

In its report, Capital Structure quoted an unnamed source close to the company as saying that Eircom will need a waiver, or forbearance from both its first and second lien lenders, even though the company has so far only been engaged in talks with its most senior lenders.


The independent business review by Ernst & Young was commissioned at the request of lenders to provide a basis for restructuring talks -- including revenue projections -- that will be used to determine an appropriate level of debt for the company.

A spokesman for Eircom said that report was being finalised and would be sent out to all senior lenders in the near future.

Senior lenders typically seek a percentage of the value of a loan as a "fee" for consenting to a waiver.

Last night, Eircom's spokesman said the company has not yet sought a waiver from lenders. But he added that discussions between the company and its most senior lenders on the debt situation were now under way.

The talks are only with senior lenders, however.

Eircom's loans are widely held and are in the hands of a diverse group of lenders, ranging from conservative debt funds to investors that often pursue so-called "loan-to-own" strategies. These lenders buy corporate debt at distressed prices and use it to take control of companies by swapping the debt for equity when the loans are not repaid, or the terms of the loans are breached.

Eircom's senior debt is trading at around 83pc of face value in the secondary market, compared with prices of around 34pc for the second lien loans.

The lower-ranked bonds can be had for just 10pc of face value, while the PIK notes change hands at between 1pc and 3pc, because most traders think they will be wiped out in a restructuring.

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