Tuesday 21 November 2017

Eircom's senior debt tumbles in secondary markets

Donal O'Donovan

Donal O'Donovan

EIRCOM'S most senior debt has come under pressure, with loans issued by the company falling sharply in the secondary markets over the last week.

The loans sit above €1bn of more vulnerable bond debt that was already trading at steep discounts of up to 85pc on fears the bonds will suffer losses if the company restructures its debt.

Now 'IFR magazine', known as the investment bankers' bible, said some senior bank loans issued by Eircom have fallen to 65pc of face value from 70pc a week ago.

Unlike bonds, loans are private securities, they are not traded through exchanges and prices can be shrouded in secrecy.

The "second lien" loans changing hands at 65 cent in the euro are part of the €2.85bn that Eircom owes through bank loans.

The bulk of the loans are known as "B&C" loans, these have fallen to around 75/80pc of face value.

The more recent discounts on the more senior loans, and the sharp difference between the second lien and B&C loans, means the market is concerned that even the senior debt could be vulnerable.

When corporate debt is restructured recoveries are determined based on the seniority of the debt. In a deal like Eircom with multiple layers of debt even slight differences in rank can mean big differences in recoveries.

The loan elements of the Eircom debt package are still the least vulnerable to losses, indeed one of the biggest holders of the loans is JPMorgan. It was hired as an adviser to the company this year in what was widely seen as a signal that protecting the loans from losses is a priority for the company.

The latest fall in debt prices comes as all businesses that operate primarily in Ireland are seen as vulnerable as austerity measures are expected to bite consumers and businesses in 2011.

Irish Independent

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