The riskiest new bonds Digicel has issued under a massive debt restructuring have started trading at a 50 per cent discount this week, as a leading credit ratings firm highlighted that the financing of Denis O'Brien-owned telecoms group was "untenable".
Following four months of negotiations, Digicel said last week that almost 98 per cent of the holders of $2 billion (€1.75 billion) of bonds due for repayment in 2020 had agreed to postpone getting their money back from the debt-laden group, by swapping their holdings for notes that will mature in 2022.
The same proportion of investors in a separate $1 billion of existing 2022 debt were persuaded to exchange their notes for ones that will be redeemed in 2024.
However, the new 2024 bonds as well as $937.1 million of the new 2022 bonds rank towards the back of the queue in terms of recovery should Digicel run into financial trouble. The group, which has been grappling with declining earnings in recent years, has a total of about $6.7 billion of debt.
The 2024 bonds started trading this week at 48 cents on the dollar, while the lower-ranked 2022 notes were changing hands at a 50 per cent discount to their par value.
‘Junk’ territory
Moody’s, one of the world’s main credit ratings firms, has said that it’s Caa1 rating for the Digicel group, which is seven levels deep into “junk” territory, “reflects its high leverage and untenable capital structure, with the company still facing large debt maturities in the coming years and a weakening liquidity profile”.
“While Digicel benefits from product and geographic diversification, leading market positions and high operating margins, it is present in emerging markets with a history of instability and exposure to adverse weather events and currency depreciation,” Moody’s said.
Digicel, set up by Mr O’Brien in Jamaica in 2001, operates in 31 markets across the Caribbean and Asia Pacific regions.
Restructure
Ratings firm Fitch said that the push by the "controlling shareholder" – Mr O'Brien – to restructure Digicel's debt, rather than raise additional equity or speed up asset sales, as well as the company's move to subordinate certain bondholders as part of the bond exchange, will have consequences.
“These moves have undermined the group’s position with creditors and will result in higher refinancing costs at all levels,” Fitch said, adding that while the restructuring gives Digicel more time to sell assets, the company still had bonds maturing in 2021, totalling $1.3 billion.
The Irish Times reported in November Digicel had indicated to creditors that it may not meet its debt-burden target for its current financial year to the end of March, as its planned sale of unwanted assets drags on.
The company had previously forecast that it would cut its debt to 5.7 times earnings before interest, tax, depreciation and amortisation (Ebitda) at its fiscal year-end from 6.7 times last March. The guidance was premised on Digicel raising up to $500 million on asset sales and increasing its full-year Ebitda by about 10 per cent on the year to $1.1 billion.
