Eircom may breach terms of its loans

EIRCOM said it sees no signs of growth or increased spending by customers in the medium term.

The company also said it may breach the terms of its loans as it reported a 5.6% fall in quarterly revenues. The company’s adjusted earnings before tax and interest were flat at €168 million in the last quarter.

Eircom, which has to service €3.15 billion of debt used to fund its buyout by Temasek Holdings Pte, is assessing its options, according to Eircom’s chief financial officer Peter Cross.

“We have positive headroom as of September, so it is something we have some time to deal with,” said Mr Cross, who reiterated he’s confident Eircom can avoid default with an equity injection or by renegotiating the covenants with lenders.

The company said the crisis in Ireland’s economy and banking system has magnified the effect of increased competition in voice and mobile services.

Declining revenue has combined with “high” debt levels to push the company close to a covenant breach, they said. They added that Eircom’s loan covenants may be violated in the next 12 months if no action is taken.

“You’ve got the decline of the traditional incumbent from competition, combined with the Irish economic downturn,” said Jonathan Moore, an analyst at Evolution Securities in London. “That’s all been mixed up with an inappropriate capital structure with too much debt for a business like this.”

Eircom chief executive Paul Donovan said the company continues to manage its business in a difficult and uncertain economic environment.

EBITDA remained steady for the quarter at €168m, but revenue pressures remain across all areas of the business, offset by continued progress on cost reduction.

Pay and non-pay costs fell 9% on the same period last year. Last quarter Eircom announced a plan to achieve at least €90m in labour cost savings.

The group’s cash balance was at €361m at September 30. This quarter, Eircom lost 20,000 fixed lines, compared to 23,000 lines for the same period last year. Voice traffic minutes fell 12%.

The total number of mobile customers stood at 1,036,000 at September 30.