THE INTERNATIONAL Swaps and Derivatives Association ruled that Eircom is technically in default over its debts after the association said there had been a failure-to-pay credit event.

The ISDA said credit-default swaps on Eircom Group’s parent ERC Ireland Finance will be settled, with an auction held “in respect to outstanding CDS transactions”.

Credit default swaps are a form of insurance that bondholders can take out to guard against non-payment of their debts.

There were 2,080 swaps contracts covering a net $293 million (€222 million) of the telecoms company’s debt as of March 9th, according to the Depository Trust and Clearing Corp, which runs a central registry for the market.

ERC Ireland Finance was cut to “selective default” from CC by Standard and Poor’s last month after the company missed a coupon payment on its floating-rate notes.

Eircom, seeking to restructure €3.75 billion of debt, may seek protection from creditors as early as this month, three people with knowledge of the matter said last month.

This could take the form of examinership, through the Irish courts, or some form of “pre-pack” administration in the UK.

Just over 50 per cent of the first lien holders, who are owed €2.7 billion, would have to agree for the examinership process in Ireland to proceed.

Eircom said last week it supports “in principle” a restructuring proposal submitted by a group of first-lien, or most senior, lenders.

The former state telco also said that it had received a number of indications of interest in the company ahead of the March 12th deadline for expressions of interest.

However the board assessed and rejected all of the proposals which had come in response to a sales process kicked off last January and which was being run by Morgan Stanley.

The senior lenders propose writing off 15 per cent of their loans, double the amount previously planned, in exchange for full control of the company, according to two people with knowledge of the matter.

The first-lien lenders, led by two Blackstone Group LP units, envisage second-lien lenders recovering €35 million, or 10 per cent, of their loans, with more junior creditors losing virtually all their investment, according to sources. – (Bloomberg)