ONE MORE THING:THE MOVE this week by Eircom's so-called Pik note holders to write to the board of its Cayman Islands-based parent has added an interesting twist to the saga that is its financial restructuring.
The Pik note holders, who are owed about €670 million, are on the bottom rung of the creditors ladder when it comes to being repaid.
They have told the directors that they believe the company is insolvent and have made noises about taking legal action to protect their positions.
Pik notes are a high-risk form of investment with high interest rates attached. The paper is virtually worthless at present, which tells you that the market doesn’t expect the notes to be paid up in full.
In reality, this move by the Pik note holders is nothing more than a thorn in the side for the company’s directors and shareholders and probably has more to do with them positioning themselves in the event of a default, which would trigger early repayment of the monies owed. To date, they have been frozen out.
As it stands, Eircom is seeking a three-month waiver from its senior lenders on the terms of its financial covenants, which it will breach this month.
This is likely to be granted but there are issues over fees and the appointment of new independent directors that have to be resolved.
The outcome of these negotiations is unclear. At present, there’s a game of chicken at play between the various sides. This will most likely drag on for some time.
A resolution might ultimately have to be found in the courts, with speculation mounting than an examinership in Ireland or an administration process in the UK could be sought by the company.
Meanwhile, Eircom limps on. It is trying to remain competitive against nimbler rivals and to persuade cash-strapped consumers to stick with it when there are often better deals available elsewhere.
It is also trying to keep its creaking copper network ticking over while investing in the first phase of a fibre rollout that is crucial to its future.
Its business plan predicts sharp falls in earnings in the next few years. It’s quite a juggling act for Eircom chief executive Paul Donovan. How did it all come to this?
