EIRCOM IS expected to begin talks with lenders on its “financial position” in the coming days after saying yesterday that it could breach its financial covenants by the end of August.
Informed sources suggested that the company’s advisers – JP Morgan and Gleacher Shacklock – will seek an “aggressive” restructuring of its €3.8 billion net borrowings, possibly seeking to reduce them by €800 million or more.
Speaking to The Irish Times, Eircom chief executive Paul Donovan declined to quantify the size of any restructuring. “There is no definite path forward.”
He added that talks with its lenders would begin “imminently”.
Eircom has net senior debt of €2.7 billion. It also owes €350 million to floating rate noteholders and has €630 million in PIK notes, which are currently trading at a substantial discount. It is scheduled to make a repayment of €24 million in June this year and €296 million by June 2014. The rest of the debt must be repaid over the following three years.
Eircom said it would hold talks with its shareholders – Singapore-based STT and the employee Esot – about injecting new equity into the business. This would be used to pay back senior debt and would rank as Ebitda on a 1:1 ratio.
The agreement with lenders allows for an equity injection once every 12 months. This would give the company breathing space on its covenants but it is understood that shareholders are reluctant to provide the funds in the absence of a viable new business plan and some form of deal with lenders.
The massive debt dates back to 2007 when Eircom was controlled by Australian investment group Babcock Brown.
Eircom said it expected to conclude an agreement this week with unions on cost savings of €90 million to be achieved by 2013.
This will include pay measures, additional redundancies, performance management, a reorganisation of functions and a modernisation of work practices.
Eircom also published results for the six months to the end of December 2010, which represents the first half of its financial year.
Revenues fell by 6 per cent to €880 million. Earnings before interest, tax, depreciation and amortisation (Ebitda) dropped by €5 million to €322 million. This was offset somewhat by an 8 per cent reduction in group operating costs to €558 million.
Its number of fixed lines was down 75,000 to 1.4 million year- on-year at the end of December. Fixed-line revenues fell by 5 per cent to €687 million, although Ebitda was up 5 per cent at €289 million due to lower costs.
In mobile, revenue was down 9 per cent at €219 million, while its Ebitda declined by €18 million to €33 million in the period. Average revenue per user fell 8 per cent to €32.07.
