Sunday 17 November 2019

Eircom to reveal if it passed crucial debt tests

May 27 announcement to pave way for talks with lenders

Donal O'Donovan

Donal O'Donovan

EIRCOM will tell investors on May 27 whether it passed the crucial 'covenant tests' on its corporate debt at the end of March, a spokesman for the company said last night.

The statement, along with accounts for the first three months of the year, will set the scene for the long-awaited talks on restructuring the company's €3.75bn of debt.

Eircom has been widely tipped to miss the targets, but even if it can show it scraped through the March tests, the company still has to address its unsustainable debt burden.

The covenants are conditions attached to the company's loans and are tested every three months so that lenders can oversee the company's performance. If it fails the tests, it hands the balance of power in the debt talks more firmly to lenders.

This week will see a round of "talks about talks" as both sides prepare to engage on the major issues after the May 27 disclosure. Significantly, Eircom is expected to formally recognise a committee representing its most senior creditors as early as this week.

Up to now the senior lenders had been working together through an ad-hoc co-ordinating committee. Once a committee is recognised, the debtor agrees not only to engage with its advisers, it also agrees to take on the costs run up by the group, including for legal and banking advice.

More junior lenders have yet to be given any indication that their costs will be paid, with one source among Eircom's advisers saying the company side is likely to object to funding advisers to the most junior lenders.

Companies are obliged to pay for advisers to their lenders in debt-restructuring talks, but only if management believes that a lender is 'in the money'. Lenders are generally considered 'in the money' if the amount they are owed would be covered in a liquidation.


Eircom's most senior lenders -- those at the top of the queue for repayment -- only finalised the members of their co-ordinating committee in recent weeks, despite hiring a bank to advise them months ago.

The senior lenders finally elected the final members of the committee after shunned attempts by a group of more junior 'second lien' lenders that wanted to be included in the main creditor committee.

It's a sign that there may be as big a gulf between Eircom's creditors as there is between the company and the creditors.

The decision by the most senior lenders to go it alone means there are four distinct groups of creditors trying to get seats at the negotiating table: first lien lenders owed €2.6bn; second lien owed €350m; bondholders owed €350m and junior PIK lenders owed around €600m, but with the weakest claim on Eircom's assets.

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