Denis O'Brien's Digicel Group offered on Thursday to buy back some of its riskiest bonds, which hold a claim to a potential 49 per cent stake in the company in a little over 2½ years' time.
The $203 million (€172 million) of convertible notes, which are set to convert into a stake in Digicel in June 2023, were handed out earlier this year as part payment to certain types of bondholders that participated in a deal to wipe $1.6 billion off the group’s debt pile as part of a massive distressed-debt restructuring.
There was a strong view among bondholders and analysts at the time of the massive debt overhaul that Digicel, the telecommunications group operating in more than 33 markets across the Caribbean, Central America, and Asia Pacific, would seek to redeem these bonds before the conversion date.
The company is now offering to pay as much as $10 million to buy back some of the bonds for as little as 20 cent on the dollar, which marks a premium to the 13-15 cent range at which bonds have been trading in recent times.
It is not clear whether the low trading price reflects a market view of the ultimate value of Digicel in the future, or the fact that the thin volumes of trading of the bonds had been dominated by unnatural holders of such securities who are looking to get out. Many of these may be under pressure to tidy up their investment portfolios before the end of the year.
Either way, the offer would only shave between $40 million and $50 million off the group’s estimated $5.4 billion remaining debt. A full take-up of the offer at 20 cent on the dollar would lower the future stake claim of the group of convertible note holders to 36.8 per cent from 49 per cent.
The tender offer is due to expire on December 17th.
Restructure
Digicel moved immediately after its financial year-end in March to restructure its then unsustainably high debt level of $7 billion following years of earnings decline, which led it to conclude a deal in June that saw bondholders write off $1.6 billion of what they are owed.
The transaction involved the creditors swapping their bonds for securities of a lesser value and has been described by credit ratings agencies as a “distressed debt exchange”. The convertible notes formed part of the payment for two types of bondholders.
Digicel spent $6 billion developing its networks over almost two decades across its markets. Mr O’Brien took at least $1.9 billion of disclosed dividends out of the group between 2007 and 2015.
