EIRCOM’S SENIOR lenders have agreed to a three-month waiver of the covenants relating to €2.7 billion worth of debt owed to them by the company.

This prevents a debt default by Eircom and allows the Irish telecoms group the breathing space to restructure its loans.

Eircom has been negotiating with a co-ordinating committee of first-lien lenders on this matter since early July.

Second-lien lenders were also eligible to vote on the waiver. It is understood that about 200 banks and bondholders were involved in the vote.

Eircom had previously indicated that it was likely to breach its covenants by the end of August.

In return for the waiver, Eircom will pay 50 basis points on the debt owed to the lenders. This however will only apply to the lenders who have consented to the waiver.

Approval from two-thirds of lenders was required for the waiver to be approved.

It was not clear last night how many of the lenders had given the green light to the waiver. Eircom’s maximum exposure will be €13.5 million. No comment was available from Eircom last night.

Agreement on a waiver had been expected but it will nonetheless come as a relief to the company’s management, employees and shareholders.

Eircom is seeking to restructure almost €4 billion in debt. In addition to the senior lenders, the holders of FRN instruments and Pik (payment-in-kind) notes holders are also owed significant sums.

The loans are subject to certain terms or covenants, relating to the ratio of Eircom’s earnings to its debts. A breach of these terms would allow the lenders to demand immediate repayment.

The restructuring of Eircom’s debts also involves the company’s shareholders – Singapore-based STT and the employee Esot. They are expected to invest capital into the business as part of any agreement. It is possible that the lenders will seek a significant stake in Eircom in return for writing down some of their debts.

Speculation has mounted that Eircom might seek to implement some form of court-approved solution – possibly an examinership or administration – either in Ireland or Britain.

Eircom has declined to comment on the options being explored. Its desire to restructure its debt pile comes at a time when it is seeking to significantly reduce its cost base. The company is under significant pressure in the recession.

Eircom last week said earnings at its mobile division were “significantly lower” in the fourth quarter of its financial year, which closed on June 30th.

The waiver may be a temporary fix, according to Steven Mitra, a London-based partner at LNG Capital. “In a debt-restructuring situation, getting a waiver is by no means an indication the company is close to being out of the crisis,” Mr Mitra said.

“If covenants are getting busted and valuations don’t stack up, shareholders will need to either recapitalise or inject more equity.” – (Additional reporting: Bloomberg)