EIRCOM’S MAJORITY shareholder, Singapore-based ST Telemedia, has proposed injecting €200 million into the business with a clause that would see the money being repaid if Ireland leaves the euro before the end of March 2013.
STT’s proposal would also involve Eircom’s first-lien lenders taking a 25 per cent haircut on their €2.4 billion debt.
Previously, STT had proposed a capital injection of €300 million and a debt writedown of 8 per cent. It has modified its plan in the wake of the euro zone crisis.
Under the most recent proposal, presented to the Eircom senior bondholders in London on Monday, the first lien lenders would take 25 per cent ownership of the company, compared to a 20 per cent stake, as suggested in the previous STT proposal.
Significantly, the employee Esot, which owns 35 per cent of Eircom, was not party to the latest proposal, although it is still in discussions with STT.
One informed source said STT’s revised proposal received a “cool reception” from the lenders.
STT said in a statement on Monday that its proposal is “targeted at giving Eircom an optimal chance to be competitive and viable by addressing the company’s long-term balance sheet issues, while supporting its ongoing business strategy”.
Under the new proposal, €100 million cash would be paid upfront, with €100 million paid a year later.
The new offer also contains a material adverse change clause that would allow STT reclaim its investment if Ireland leaves the euro before March 2013. Under the proposal, STT’s investment would be deemed senior to all other debt in the company.
Earlier this month, STT surprised many observers when it said it would not be submitting a proposal “owing to the continuing macro-economic uncertainty in the euro zone”.
However, it reversed that decision, presenting its new proposal to the board on Monday.
Independent directors of Eircom, which has net debt of €3.7 billion and which has breached its lending covenants, are now considering three proposals for restructuring its massive debt. As well as the STT proposal, it has received a proposal from its first lien lenders that would see the senior debt holders take full control of the business in return for a a writedown of 7 to 9 per cent on its debt, and extending the maturity date of that debt.
Second lien debt holders, who face having their debt either wiped out or substantially reduced, have also submitted a proposal.
The company’s independent directors will begin evaluating the proposals this week but it is not clear when they will make a recommendation to the board.
In September, Eircom secured a waiver on its covenants which expires tomorrow. Eircom said yesterday it will update the market on its request for a waiver extension tomorrow after senior lenders have voted.
In a trading update for the month of October, which was presented to a meeting of senior lenders on Monday as part of the covenant waiver deal, Eircom said there was a “ significant reduction in performance compared to the corresponding period in 2010”.
Fixed-line and mobile average revenue per user underperformed due to lower consumer confidence and competition, according to the company, though large business, government and wholesale segments continue to perform well.
The group’s overall decline in revenues has been largely balanced by cost savings, the company said, with operating costs lower than planned for the month.
