Pressure mounts on Eircom as debt advisers called in

HOLDERS OF Eircom’s senior debt have appointed restructuring experts Houlihan Lokey as advisers as they prepare to negotiate with the troubled telecommunications company about billions of euro of outstanding debt.

The mounting pressure on Eircom to find a solution to its debt crisis comes as crunch talks on the future of the former State company take place in Dublin this week.

It is believed four representatives of Singapore-based STT are holding intensive meetings with various Eircom stakeholder groups including Eircom management and board, the employee Esot, and union representatives.

However, it is expected no definitive resolution to the complex financial problems facing the company will be reached ahead of the publication of the company’s half-year results next Tuesday, although the company is expected to provide an update to the market about a possible breach of covenant.

Eircom is seeking to restructure close to €4 billion in debt, the majority of which is senior debt.

In November, it signalled it could breach its banking covenants within 12 months. Ratings agency Moody’s has suggested a breach could come by the end of June.

Eircom’s debt has been downgraded a number of times by various ratings agencies and has been trading at a heavy discount in the markets, with speculation that some form of debt buy-back may be on the cards.

Discussions this week are centring on how to address the company’s debt pile, which threatens to bring down the company.

Management is seeking to make savings of €90 million in labour costs over the next three years, which may involve further job losses.

Some level of cash injection is seen as almost inevitable, and it has been speculated that up to €300 million could be injected into the business by shareholders. This could include the provision of €200 million in new equity by STT and possibly up to €100 million by the Esot, which owns 35 per cent of the company.

Cash-rich STT is one of the world’s largest telecommunications companies. It bought Eircom for €140 million in late 2009 – the company’s fifth owner since Telecom Éireann’s flotation more than 10 years ago.

The financial travails of Eircom have plagued successive owners and the company has shed 1,500 jobs as a result of intensive restructuring within the company.

The appointment of Houlihan Lokey by senior lenders to the company signals the growing urgency around the debt issue.

Junior bondholders have already appointed advisers.

Houlihan Lokey, which has offices in Europe, the US and Asia, is an expert on corporate restructuring, and advises companies on matters related to loan restructuring.

Eircom has been losing market share in both the fixed-line and mobile markets as a result of the economic downturn and stiffer competition. The company owns the Meteor mobile brand.

Revenues fell by 8.5 per cent last year to the end of June to just more than €1.8 billion, although it did reduce its operating costs by 11.5 per cent.

It has also seen a number of high profile departures of late.

Chief financial officer Peter Cross departed in December, while the company’s corporate affairs director and director of eMobile left last year.