Eircom Group may ask lenders to write off more than €1bn of debt

EIRCOM Group may ask lenders to write off more than €1 billion of debt, according to sources.

The company will seek haircuts on payment-in-kind securities and floating-rate notes, according to a source. Second-lien creditors may be offered equity for accepting a discount. It isn’t clear whether first-lien lenders will be affected, the person said.

Eircom, saddled with €3.75 billion of debt following five changes in ownership in the last 12 years, said last month it is “very optimistic” it can resolve its debt situation this year, even as it warned of a likely breach in financial covenants within three months. Moody’s Investors Service this month downgraded ERC Ireland Finance Ltd, parent of the company, and warned of a possible default on debt.

Eircom has cut its earnings forecasts, according to the two people. The firm had earlier projected earnings before interest, tax, depreciation and amortisation of more than €600 million in coming years, the people said. Now, it has cut its forecasts to as low as about €550m, said one of the people. It is not known when the cuts were made.

“The company has no comment regarding speculation concerning any proposal regarding the balance sheet,” said Paul Bradley, a spokesman for Eircom, by telephone. “At our recent third-quarter results, the company stated that we will make a proposal to lenders in due course. At that time, we also guided that there would be an acceleration in EBITDA decline.”

Taken over last year by Singapore Technologies Telemedia Pte and a trust owned by current and former Eircom employees, the company had €2.36bn of first lien debt, according to results released on May 27.

Eircom also has €350m of second-lien borrowings, €350m of floating-rate notes and €643m of payment-in-kind notes at the end of March.

Eircom’s owners will also be expected to provide new equity to the company as part of a capital restructuring, the two people said.

Eircom, advised externally by JPMorgan Chase & Co and Gleacher Shacklock & Co Inc, expects to “shortly” agree terms of engagement with a committee formed to represent senior creditors in talks on a restructuring of debt, Bradley said on June 14.