Monday 19 February 2018

S&P downgrades Eircom's credit rating on debt restructuring fear

Donal O'Donovan

Donal O'Donovan

Eircom, Ireland's largest telecoms provider, has been whacked with a ratings downgrade from Standard & Poor's.

The ratings agency said it believed there was a risk Eircom would breach the conditions of its loans in the coming year.

Last night, Standard & Poor's cut the credit rating for the company from B- to CCC+.

The new rating is close to the lowest possible for a company not in default and is already under review for a possible downgrade.

"We believe that the Eircom Group companies will likely breach one specific covenant within a year or so, absent any remediation measures," according to Standard & Poor's credit analyst Xavier Buffon.

The move comes on the back of growing fears that Eircom could be forced to restructure its debt. Eircom's own management have flagged the same risk in recent results announcements.

Debt

Debt issued by Eircom was also downgraded by one notch across the board yesterday.

Mr Buffon said his agency believes the mix of debt and capital on Eircom's balance sheet might not be sustainable in the long-term.

Eircom is highly indebted and exposed to stiff competition, and the Irish economy's recession, he said.

Mr Buffon said lenders would be at risk if the borrower tried to restructure its debt.

Restructuring could happen alongside efforts to fix a breach of covenants, according to the S&P analysis. The easiest way to fix such a breach is by injecting fresh cash into the business.

If that happens Eircom's owners could demand a write-off of some debt in return.

S&P said Eircom management is less likely to try to fix a breach of its covenants, or successfully avoid a breach without lenders being hit.

If that does happen, however, S&P said it could raise Eircom's ratings by one notch.

Irish Independent

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