Digicel paid $90 million (€83.3m) in fees and bonuses to Denis O’Brien and companies controlled by the businessman over the past three years, according to documents related to a massive debt restructuring currently under way at the company.
The payments included $5.49 million given to Mr O’Brien under a long-term incentive plan and a bonus linked to the company’s sale last year of its Pacific operation – as well $26.2 million of rent over the 36-month period for the use of a jet owned by a company controlled by the entrepreneur.
The network of markets in which Digicel operates has fallen from 33 to 25 since the Pacific deal. It is now focused on the Caribbean and Central America.
Mr O’Brien’s Island Capital advisory firm, which has had a long-standing role helping Digicel with financing and deals, received $11.9 million in fees over the three financial years to the end of March, including a $7 million completion fee tied to the Pacific unit sale, according to the filings, lodged by units of the group with the US Securities and Exchange Commission last week.
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Actavo, an engineering services company controlled by Mr O’Brien, has been paid $43.8 million over the past three years, mainly for the installation and maintenance of fibre-optic networks in Digicel markets. Actavo, formerly known as Siteserv, “secures the business from Digicel through a competitive tender process involving other vendors”, the documents noted.
Mr O’Brien would also have received salary and other short-term benefit. Total such payments to key management totalled €14.4 million in Digicel’s last financial year, or €36.9 million over three years.
The documents underscore how parts of Mr O’Brien’s business empire have continued to benefit financially from offering services to Digicel since he stopped taking dividends from the group eight years ago when its bond investors started to become concerned about the company’s borrowing levels. He extracted at least $1.9 billion of dividends from the group between 2007 and 2015, at a time when the company’s debt mountain was growing rapidly.
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The current restructuring, which will see $1.7 billion of debt written off and a group of bondholders take control of the group, is Digicel’s third attempt to overhaul its borrowings in the past five years. It is on track to reduce company debt to $3.12 billion, compared to a peak of over $7 billion in early 2019.
The filings confirm previous reporting by The Irish Times that Mr O’Brien’s equity stake will fall to 10 per cent as holders of two categories of bonds exchange debt investors for a control of the group.
The bondholders are led by PGIM, formerly Prudential Investment Management, GoldenTree Asset Management, and Contrarian Capital Management.
The Digicel founder will also receive warrants that will allow him to purchase within six years the equivalent of a further 10 per cent of the amount of shares outstanding when the restructuring is completed. The price at which the warrants can be converted into shares will be based off an equity value target of $1.1 billion for Digicel. A valuation calculation used by debt ratings agency Fitch suggests that the company will have an initial equity value of about $375 million after the debt overhaul.
Mr O’Brien will remain on the main board as a non-executive director for at least three years, according to the documents. A so-called services agreement will also see him “to perform services for the companies in a manner consistent” with his current role as executive chairman.
The restructuring is on track to be completed in the coming months through a so-called scheme of arrangement carried out in Bermuda and rubber-stamped through a US reorganisation under Chapter 15 bankruptcy protection.
