A COMMITTEE representing so- called Pik note loanholders in Eircom has written to the board of its Cayman Islands-based parent stating they have every reason to believe the company is insolvent.
In the latest twist to the Eircom financial saga, they have also questioned how the parent company intends to repay its debt.
In addition, the committee has accused the directors of being in breach of their duty of care towards them and have warned they will take legal or other action if necessary to protect their position.
The Irish Times has learned that the letter was delivered by hand in the Cayman Islands yesterday to ERC Ireland Preferred Equity Ltd, the ultimate parent company of Eircom and the entity that issued the loan notes.
“The committee believes that the directors of the company are not taking active and independent steps to safeguard the interests of the company’s creditors, the holders of the Pik notes, and are putting those interests at risk by their failure to do so,” the letter stated.
It also states that the directors have a duty of care to creditors ahead of shareholders and that they have lost faith in the board’s ability to look after their interests.
The Pik (payment-in-kind) noteholders are on the bottom rung of the ladder in terms of Eircom’s creditors and the general consensus is they face having their near €670 million in loans wiped out.
To date, Eircom has declined to engage with the Pik noteholders on its financial restructuring, but has opened talks with a committee representing senior lenders.
Eircom has debts of nearly €4 billion and has begun consultations with its shareholders – Singapore-based STT and the employee Esot – and its senior creditors about a financial restructuring.
This is based on a new business plan, drawn up by the company’s management team led by chief executive Paul Donovan.
This move by the Pik noteholders will be seen as a gambit to force the company to engage actively with them on the financial restructuring, which has gathered pace in recent weeks.
Speculation has mounted that Eircom might even seen to enter examinership – which would give it protection against its creditors for a period of time – or other forms of restructuring to resolve its financial difficulties if an agreement cannot be reached with its creditors.
It is not clear what legal action the noteholders might pursue against Eircom’s parent, but it could include seeking a winding up of the company. In addition, noteholders might await the outcome of the financial restructuring and seek damages for any losses they will have incurred by that time.
