Eircom awaits legal ruling on protection

Debt-burdened telecom giant Eircom will know today if it can have High Court protection to allow it trade out of its difficulties.

Eircom and two related companies, Meteor and International Telecoms Investments (ITI) Ltd, have debts of €3.6bn and are insolvent, the court heard.

Mr Justice Peter Kelly said he would give a decision today on an application by the Eircom companies to seek the appointment of an interim examiner so that it can undergo restructuring.

If approved, it will be the largest examinership in Irish corporate history.

It is intended to allow Eircom implement a five-year business plan which will reduce the debt to €2.35bn and ensure its survival as a going concern.

Examinership would protect the company assets from creditors for up to 100 days while the plan is being implemented. The alternative is that it could be put into receivership and sold off at its “enterprise price value,” Maurice Collins SC, for Eircom, said yesterday.

It will protect the bulk of the group’s 5,500 jobs, 4,800 of whom are employed by Eircom and 700 by its mobile phone subsidiary Meteor, he said.

There is expected to be a reduction of 1,000 in that number under the plan but these should be achieved through voluntary redundancy as has happened in the past with the company.

The plan will also protect creditors though Eircom shareholders will be “effectively wiped out”, counsel said.

The examinership application came about because, even though the group had been trading profitably, its debt burden had increased significantly through “successive acquisitions” over the last ten years of other companies.

Mr Justice Kelly commented this appeared to have been done with “monotonous regularity every two or three years and the debt increased every time”. The judge also said he had questions about liability of directors over these acquisitions although he was later informed by Mr Collins that these were not made by the current directors.

Mr Collins agreed with the judge that Eircom’s problems did not occur overnight and, last June, when the company decided to face up to its difficulties, its creditors decided not to “pull the plug” and granted waivers to allow it to continue trading.

As of yesterday however, those waivers had been withdrawn, counsel said. What was now required was a business plan to allow it to continue paying suppliers as normal and to get on with a €1.3bn investment plan to roll out fibre optic broadband over the next five years, counsel said.

Under the plan, which has the approval of an independent accountant, it is proposed that its main creditors, or first and second lien lenders, will take significant haircuts in their debts.

The first lien lenders, owed nearly €2.7bn, have agreed to take a cut of €407m while second lien lenders, owed €350m, will take a 90% cut bringing it down to €35m, counsel said. Another group, known as floating-rate note loan-note holders are owed €350m and will not receive anything.

Bernard Dunleavy BL, on behalf of a co-ordinating committee for the first-lien creditors, said his client was supportive of the appointment of the interim examiner and it would be a stabilising step for the company.

Mr Justice Kelly said he wanted to consider the matter overnight and would give judgment today. Court protection is in place until then, he said.