Denis O’Brien’s Digicel asks creditors to write off some of its $6.8bn debt

Businessman Denis O'Brien's heavily indebted Digicel phone group is in talks with bondholders about writing off a large part of what they are owed, as the company seeks to lower its $6.8 billion (€6.2 billion) net debt pile.

Digicel said in a statement on Friday that it was in talks with certain bondholders about them exchanging their notes for new securities from entities within the Digicel group.

“If the transactions are to be consummated, the value of the exchange consideration would reflect a discount on the current aggregate principal amount of the existing debt,” Digicel said, indicating that if it got enough support from bondholders, it might use a legal mechanism, or scheme, to impose it more widely.

Debt ratings firm Fitch has previously said that the company would be likely to restructure $3.8 billion of bonds, including $1.3 billion of notes that mature in April 2021, which is the most pressing issue that must be dealt with.

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Digicel’s bonds have tumbled in value in the past 12 months amid mounting concerns about how sustainable the group’s debt mountain is following declines in earnings in recent years.

Its 2021 bonds have slumped from 71.5 cent on the dollar to 54.8 cent in the past week, reflecting a growing nervousness in the market that holders of the bonds will not get all of their money back.

“No assurances can be provided that an agreement will be reached,” Digicel said. A spokesman for the company declined to comment on what categories of bonds it was looking to restructure.

Bonds tumbled

The company, set up by Mr O’Brien in 2001, operates in 32 markets across the Caribbean, Central America and Asia Pacific regions. While it had seen an improvement in its earnings in recent quarters, following years of decline, the view among financial analysts has long been that its debt level is unsustainably high.

Earnings before interest, tax, depreciation and amortisation (Ebitda) rose by 4 per cent year on year to $251 million in the third quarter of Digicel’s financial year to the end of March.

This was driven by more favourable currency movements in some of its main markets against the dollar, and ongoing data revenue growth, which has offset declining voice sales in its mobile division. It has 14 million subscribers, according to its website.

Digicel has spent $6 billion developing its networks and business, driven by debt issued in the US junk bond market. The borrowings also allowed Mr O’Brien to take at least $1.9 billion of disclosed dividends out of the group between 2007 and 2015.

Sources among Digicel’s bondholder base said late last year that Mr O’Brien would face demands to inject equity into the business to demonstrate good faith and personal commitment, in order to get a debt restructuring over the line.

Confirmation of the negotiations with bondholders comes a little over a year after creditors holding almost $3 billion of Digicel bonds agreed to postpone getting their money back by accepting longer-dated notes in exchange for their holdings.

This was described by credit rating firms as a distressed debt exchange or restructuring, with many of the new bonds that were issued ranking at the back of the queue for recovery in the event that the company ran into trouble.

It is expected that these subordinated bonds will be among those targeted in the current round of discussions.