eircom about to get new owners

Sponge Bob

eircom are now a whisker away from breaching their covenants to their bondholders ( ie not to their shareholders who are the unions and the singaporeans).

These "covenants" are financial adequacy contracts and are to do with the amount of cash at hand at all times, 3 months interest up front and turnover ratios etc etc.

What happens when they breach the covenants?? The Bondholders can oust the shareholders is what happens. I would expect the breach between July and October this year.

Ole Sponge Bob has recently had a few strange phone calls from New York where a pack of lawyer/banker types seems to be signing up eircom bondholders so they can act on their behalf when the covenants are breached. I dunno if they signed up some or all or a majority. I don't know if they are the only pack of lawyers/bankers out there right now signing up bondholders.

I did say to the person from New York that there will be no political resistance to their taking over the company...after all it is but the exercise of a contractual right not a political issue as such.

While I do not have precise numbers I can confirm that what they intend is to take over eircom from the current lot of unions and singaporeans in order that the bondholders are seen to according to the covenants.

It may be that the Singaporeans and unions are left with a minor 10% interest to keep them on board for the transition but it certainly looks as if eircom will finish this year with another set of new owners

However these NEW owners are in a position to write off eircom debt, unlike the current set of owners. After all, they own the debt.

roast

Cheers for the info SB.
Interesting to know that its going to be so close!

Not entirely sure what to expect of the new owners. I know I'm just hoping that someone can pay the debt.

Kensington

Who would these new owners be? Would it be simply that the bondholders take complete control over "Eircom Group" or would they be looking to sell on the group (and associated debt) to another party?

Sponge Bob

Kensington wrote: »

Who would these new owners be? Would it be simply that the bondholders take complete control over "Eircom Group" or would they be looking to sell on the group (and associated debt) to another party?

Bondholders become shareholders, in essence they control the inevitable debt writedown not the existing shareholders who could run off to the UK for a "prepack" seeing as the eircom that owes the €4bn odd is a UK company. They must create an owner called Bondco to effect the takeover and with shares pro rata the bonds they hold.

The bondholders now seem to understand that 'engaging' with the current management and sharholders leaves them wide open to a prepack. They are better off asserting their rights before that happens.

Nobody will actually 'buy' it absent some writedowns.

Sponge Bob

http://www.irishtimes.com/newspaper/finance/2011/0708/1224300301037.html

EIRCOM YESTERDAY began talks with a committee representing 28 per cent of its first lien lenders on a debt restructuring.
Eircom said it had recognised the co-ordinating committee, which is comprised of Alcentra, Avoca Capital, Deutsche Bank, GSO Capital Partners LP, Harbourmaster Capital and SMBC. The committee’s financial advisors are Houlihan Lokey. Legal advice is provided by Kirkland Ellis.
Eircom has engaged investment banks Gleacher Shacklock and JP Morgan, and law firm Linklaters to represent it in talks.

I understand there may well be a second interest group of first lien bondholders, I am unaware as to whether they have collectively approached eircom at this time or whether eircom has "recognised" them yet!

lucernarian

That's some shower of hedge funds and asset managers. Where will this leave eircom? My take on this is they'll get some equity in eircom but I don't know to what extent the debt will be restructured or written off. Is there any possibility of renewed investment in eircom after they reach some sort of agreement with creditors, or will any investment go towards paying off the remaining debt?

Sponge Bob

To_be_confirmed wrote: »

That's some shower of hedge funds and asset managers. Where will this leave eircom? My take on this is they'll get some equity in eircom but I don't know to what extent the debt will be restructured or written off. Is there any possibility of renewed investment in eircom after they reach some sort of agreement with creditors, or will any investment go towards paying off the remaining debt?

Nobody does, eircoms 'owners' are hoping for a debt writeoff in return for zero equity. Hedges know nothing about running a modern full service telco but neither do eircoms managers as we well know.

Some of those hedges will likely have bought in recently at a fraction of 100% face value on the secondary debt markets and will be hoping for a write back of value. If you bought €1m at 20% face then a write back up to 40% leaves you with 100% profit after all

It is instructive that 72% of eircoms Bondholders have not joined this 'recognised' negotiation with eircom not least because they would be advised that a failed negotiation post recognition could leave them open to a unilateral prepack in the UK courts.

And yet, as we all know, anything short of a 60% writeoff of the Tier 1 principal along with an 80%-90%+ bloodbath for the subordinates is useless to the real stakeholder, the Irish public and Business who pay the highest line rental in the world for a substandard service from this debt ridden carcass.

That because anything less will not leave eircom with any significant cashflow to invest or maintain its network...not that eircom have given a ****e about investment in the last 10 years...seeing themselves as a cashcow for bondholders to get divvy payments.

The bonds come up for full payment in 2013-2015 so all I can really predict is thet the writeoff(s) will occur before then and quite likely at the last minute a few years hence. However as €2bn debt post the refinance will cost as much to finance as the €4bn does now we are looking at a scenario where the debt...post negotiations...cannot realistically exceed €1.5bn tops. And even then eircom will be not much better off but will have €100-200m extra per annum for network expenditure.

yuloni

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Headshot

Am i the only one who doesnt know what this all means

yuloni

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dingding

Make that 3.

Solair

To me it sounds like it could be yet another total mess and yet more non-telecom industry owners

Eircom would be *far* better off if it were sold on to a large European telco that could actually provide it with purchasing power, network access and technical expertise.

You can see what a huge difference being plugged-in to UPC has made to the Irish cable operations that were Chorus and NTL.

Logical companies to take it over would be BT, Orange/France Télécom, Deutche Telekom or maybe Telia-Sonera or Telenor. Even Telefonica might be a good fit, although there'd be a huge conflict of interest with O2.

I sort of wondered if BT pulled out of retail in Ireland because it has some strategy to ultimately purchase eircom if the price is right...