A conclusion for the long running talks to restructure €3.75bn (US$4.9bn) of Irish incumbent Eircom’s debt could finally be on the horizon, after managers backed a proposal from first lien lenders for control of the group.
The proposal was agreed…
A conclusion for the long running talks to restructure €3.75bn (US$4.9bn) of Irish incumbent Eircom’s debt could finally be on the horizon, after managers backed a proposal from first lien lenders for control of the group.
The proposal was agreed by the Coordinating Committee of the First Lien Senior Lenders (FLCC) in London on 14 March, and would reduce Eircom’s debt by €1.7bn (US$2.2bn) in a move designed to end more than two years of uncertainty and return the operator to viability. It will see first lien lenders write off 15% of their €2.4bn (US$3.1bn) debt, and second lien debtors given €35m (US$46m) to cancel their €350m (US$456m) of debt.
The plan would also see €350m of floating rate notes (FRN), and €700m (US$911m) of PIK debt being wiped out as the company goes through either a Scheme of Arrangement in a UK court, or the Irish equivalent of US Chapter 11 bankruptcy protection, called Examinership.
Equity held by shareholders Singapore Technologies Telemedia, which holds a 65% stake, and employee share trust ESOT, which holds the remaining 35%, will reportedly be wiped out under the proposal. Reports suggest Eircom’s existing managers would be handed a share of the business along with the first lien lenders.
Eircom was unable to comment on the proposal’s details.
In a statement on 14 March, the company said “it is in principle supportive of a revised proposal submitted by the [FLCC]. The company will continue to work with the FLCC to finalise this revised proposal as the next step in the balance sheet remediation process to provide a sustainable capital structure for the group.”
The company also revealed that it had rejected previous “indications of interest” from third parties to support its restructuring, during a sales process that was initiated in January. This sales process, run by Morgan Stanley, expired on 12 March.
A last minute proposal also tabled on 14 March by US-based Blackstone Group’s asset management business had looked set to split up the first lien lenders into different camps. Blackstone GSO, which is already a major lender to Eircom, proposed increasing its commitment by €150m (US$195m) in return for a refinancing of its old loans and a significant share of the ownership of the company.
Another proposal that was considered was put forward by Danish fund manager Advice Capital, which holds 4% of Eircom’s FRN debt and is set to see this wiped out under the first lien lenders’ plan.
Advice Capital’s proposal would have seen a decrease of €1.3bn (US$1.7bn) in net debt in an effort to secure a consensual agreement, which it claims would have meant the company would avoid being forced into a UK court or Examinership. It proposed the €2.4bn (US$3.1bn) of first lien debt either being refinanced or left whole and prolonged until 2016, second lien debt cut by €140m (US$180m) and offered profit-sharing up to €140m, more junior debt cut by €860m (US$1.1bn), and a previous offer by shareholders to inject €300m (US$391m) accepted.
Frederik Foged Dreyer-Nielsen, a portfolio manager with Advice Capital, accused Eircom and first and second lien debt holders for failing to drive a consensual agreement with all lenders.
“We fail to see why Eircom’s stakeholders haven’t tried to make a consensual agreement before taking the company through Examinership or a UK court,” said Dreyer-Nielsen.
“Debt restructuring through an Examinership or a UK Scheme of Arrangement should be the last resort after having exhausted all other options. We trust that an Examiner or UK court will acknowledge that Eircom’s stakeholders haven’t even tried to contact the involved bondholders, let alone negotiate debt restructuring on a voluntary basis.”
He said his firm was prompted to wade into the restructuring talks after Eircom failed to make a €5.7m (US$7m) interest payment on 15 February without warning. Advice Capital is in talks with other FRN bondholders about legal proceedings against the company on the missed payments.
Houlihan Lokey is advising the first lien lenders and Moelis is advising second lien debtors. Cadwalader, Wickersham & Taft LLP is advising a steering committee representing the FRN note holders, and Hawkpoint is advising the PIK lenders.
