Eircom asks banks owed €2.7bn to waive key terms of loan agreements

TELECOMS GROUP Eircom has asked a group of banks owed €2.7 billion to waive key terms of its loan agreements in order to avoid triggering clauses that would make the debt repayable on demand.

Eircom owes its senior creditors – a group of Irish and international banks – €2.71 billion. The loans are subject to certain terms or covenants, relating to the ratio of its earnings to its debts. A breach of these terms would allow the banks to demand immediate repayment of the loans. The company yesterday asked the banks to waive these covenants in order to avoid a breach of the terms. It is understood that Eircom is not in breach of the covenants, but believes it is at risk of doing so and is seeking the waiver in anticipation of this.

Chief executive Paul Donovan conceded at the end of May that Eircom was in danger of a breach within three months. The next test of its compliance is due at the end of this month. Its earnings are expected to be below the level required by the covenants.

The original terms were agreed in 2006, but the economy’s subsequent nose dive meant that Eircom’s earnings fell. In order to secure the waiver, two-thirds or more of the banks involved will have to agree to it. A decision is expected by September 13th.

A committee representing the banks to which the money is owed drew up the terms of the waiver. It was formed shortly after Mr Donovan made his statement in May and it then began talks with the company and its advisers.

The creditors involved are all ranked as “senior”, which means that they take precedence over organisations to which Eircom owes money. Recently, a group representing the lowest ranked creditors, holders of payment-in-kind or pik notes, who are owed about €670 million, wrote to the board of Eircom’s Cayman Islands-based parent claiming that the company was insolvent.

While the company entered talks with senior creditors, it has not engaged with two groups of junior creditors. The pik noteholders fear they may not recover their debt.

Eircom’s debts are about €3.75 billion and it has about €400 million cash. It is in talks with its shareholders, Singapore-based STT and its employee share-option trust about a possible equity injection.

Eircom has also been working on a business plan that involves about 1,000 voluntary redundancies over the next 12 months. The company employs about 6,000 and close to 700 have left the business over the last year.