Eircom to file for examinership after lenders back insolvency
€1.7bn to be wiped out in biggest-ever bankruptcy
EIRCOM is expected to file for examinership at the Four Courts today, in what could become the biggest corporate bankruptcy in the history of the State.
A spokesman for Eircom declined to comment but lenders told the Irish Independent that they expect an application to be made this morning.
The decision to file for examinership comes after majorities of Eircom's two classes of secured lenders voted to back examinership last night. They are owed €2.7bn of the €3.7bn of debt.
The examinership move is also understood to have been backed at a meeting of the Eircom board late yesterday,
Today, at the High Court, Eircom's outgoing chief executive Paul Donovan is expected to claim that the company is insolvent and formally seek protection from creditors.
The company will ask for Michael McAteer of Grant Thornton to be appointed as interim examiner, pending full examinership.
The plan is, ultimately, to ask the High Court to back a scheme to write off €1.7bn of debt and hand the company to its lenders.
A spokesman for the lenders said last night that the plan will wipe out 40pc of Eircom's debts and transform the business.
Many of who will become the new owners have been lenders since 2006, and are among Eircom's most long-standing investors, he said. Unlike previous takeovers, debt will be cut rather than increased if the plan gets the go-ahead, he said.
If the examinership is allowed, Eircom has 35 days to come back to court with a plan to return the company to viability.
That plan has already been drawn up. The radial scheme has been proposed by Eircom's secured lenders and will see them take control of the business.
Under the plan, Eircom will honour all of its commitments to suppliers and other non- financial creditors. Employees will not be affected by the insolvency process, as long as the company can emerge from examinership.
The proposal is centred on stripping owners STT and an employee-shareholder trust of their stake in Eircom and handing the shares to top-ranked lenders that are owed €2.4bn.
In exchange, they will write off 15pc of what they are owed and give the company longer to repay the rest.
They also want to force a write-off of €1.35bn of debt owed to other lenders, including all of the €1bn owed to unsecured bond holders and holders of Payment In Kind (PIK) notes or IOUs.
"Second lien" lenders owed €350m will receive a 10c in the euro payout for backing the plan -- otherwise they risk a total wipeout.
The plan was given the nod by a 200-strong group of lenders last night.
The biggest single shareholder will be US private equity house Blackstone. They will have the only stake of more than 10pc in the company.
Managers and top lenders have backed the plans but bondholders due to lose €1bn are considering legal options to block the process.
The most likely route would be to challenge the examinership proposal when it is formally put to the court.
At that stage any creditor can object to a scheme being proposed. The most likely challenge will be from bondholders, who may say the scheme unfairly deprives them of cash.
US law firm Cadwaladar and London's Ropes & Grey are known to be studying the matter for the bondholders.