Friday 23 February 2018

Talks on fresh cuts at Eircom will pave way for new investment

John Mulligan and Donal O'Donovan

Proposals for fresh cost cutting at Eircom could be hammered out within two weeks, paving the way for movement on addressing the company's debt burden, the Irish Independent learned last night.

The cost-cutting proposals have yet to be agreed but are expected to be put to union members for approval within weeks.

Acceptance of further cutbacks would pave the way for majority-owner Singapore Technologies Telemedia and the firm's Employee Share Ownership Trust (ESOT) to invest as much as €300m in fresh equity in the ailing business.

People involved in behind-the-scenes contacts between the company's advisers and its creditors said a cash injection would be dependant on a wide-ranging agreement with senior lenders owed €3bn and senior bondholders owed €350m.

Shareholders are thought to be unwilling to put in the cash without ensuring the new funds are not at risk of absorbing losses because of covenant breaches or left sitting behind an unsustainable debt pile, people involved in the discussions said.

Negotiations with Eircom's large creditor group could take months, but will need to be finalised before a covenant test on June 30. Creditors are already forming committees in anticipation of the negotiations.

An ad hoc group representing three-quarters of senior bondholders is being represented by law firm Cadwalader.

Senior bondholders, who sit in the middle of Eircom's complicated debt structure, are amenable to a deal if it involves a cash payoff, even at a significant discount to what they are owed, a bondholder source told the Irish Independent last night.

One bondholder source said the group could even vote to sell all of the €350m FRN stake to Eircom's shareholders, depending on the price offered for the bonds.

He said there was less likelihood of a buyback offer being extended to more junior Payment in Kind (PIK) creditors.

The PIK notes are owed €600m but it is secured against a holding company, not against Eircom's assets. That leaves the PIK vulnerable to being written off or stepped around in a debt restructuring.

Holders of senior loans sit at the top of Eircom's debt structure and are least vulnerable to losses.

They are not expected to suffer any haircuts but their agreement will be crucial to changing the restrictive debt covenants that leave shareholders vulnerable to technical default, even as they meet all of their financial obligations.

Later this week, a group of these senior "bank" lenders are understood to be meeting with investment banks pitching to be mandated as financial advisers, to represent the senior lenders in talks with the company and its shareholders.

Recent negotiations elsewhere in similar circumstances have seen senior lenders successfully demanding increased interest rates and upfront fees for agreeing to changes in the terms of their loans.

Irish Independent

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