eircom continues to atrophy

Sponge Bob

Of note

DSL customers 703k in March and 690k in December +13k
Lines 1.49m in March and 1.505m in December -15k.
Capital Expenditure averaged €83m a quarter in the second half of 2009. This has collapsed to €52m in the first quarter of 2010. Their exchange upgrade program has slowed right down .

The bump they got from launching 3g dongley packages in the second half of 2009 has subsided

"Mobile customer net losses of 21,000 in the quarter, compared with 7,000 net losses in the quarter ended 31 March 2009, and 40,000 net adds in the quarter to 31 December 2009."

and so they are giving pre pay customers 250mb of free data allowance now.

They have slowed their line loss since this time last year, not least by offering 10 months free line rental and free connection to anybody who had ceased their line by the end of 2008.

Their biggest problem is that UPC can now 'service' 600,000 homes and that 160,000 take UPC BB today = 27%. In late 2008 UPC could service 510,000 homes and 100,000 had taken it...20%

Now while UPC is not cabling any new homes and is stuck on nearly 900k premises for years ....they are upgrading that network at a general rate of around 70-90k premises every year meaning that all of their network will be BB enabled by end 2013 if they keep that up.

By then they will have 400,000 BB customers and eircom will have lost most of those homes.

Stinicker

Eircom are a dead duck unless they cut the price of line rental to around €10 to €15/month. ComReg has pretty much killed them too.

watty

http://boards.ie/vbulletin/showpost.php?p=66103692&postcount=2

Is eircom, GLUMP, LLU, Wholesale separation irrelevent now?

Sponge Bob

You are right Watty, the eircom access network is decrepifiedimated to a huge degree.

The competent network maintenance subcontractors are gone since last year and only the yellowpack network subcontractors remain. This perma short termism means that FTTC is simply not a good idea here, it would rely on increasingly decrepit copper for the final mile.

Supporting FTTC with public money .. which is what eircom asked the state to support in large towns and cities 2 years ago, that will not happen now. It did not happen when we still had a few squids and hastened the departure of that australian banking mob in the end.

We should carefully plan for FTTH, using the large cohort of civil engineering expertise doing nothing in this country. It would not cost much and it has to be done. Hanging around for the copper to rot is probably unwise while not planning for such an eventuality is tantamount to treason.

clohamon

Sponge Bob wrote: »

We should carefully plan for FTTH, using the large cohort of civil engineering expertise doing nothing in this country. It would not cost much and it has to be done. Hanging around for the copper to rot is probably unwise while not planning for such an eventuality is tantamount to treason.

Yes but…..

The state cannot subsdise Eircom
The state cannot subsidise Eircom's competitors
The state cannot compete with Eircom

……and judging by those results Eircom could stagger on for another ten years; not installing fibre itself while preventing others, including the state, from doing so either. The deadlock will remain until Eircom is cleared off the pitch.

The State has to buy Eircom (wholesale) or regulate it into receivership and then buy the assets or do so after STT has disposed of the bondholders...

An article published on 17 May indicates that Eircom may present a restructuring agreement that will mean considerable debt reductions in the bond issues. Market participants have speculated that breach of the debt covenants could be the catalyst of such a scenario.
Moreover, market participants speculate that Eircom might make a ”Hellas” structure where the company moves the headquarters to the UK and then, with the help of UK legislation, sells the company’s assets to a new company, which is ultimately owned by the current owners. This would require acceptance from the banks whose loans would typically be secured against the company’s assets but would not require acceptance from the bond holders who would be left with a loss.

https://jyskebank.com/wps/wcm/connect/8871d480428c8c54b6cfff68b98449e5/334121_20100520Eircom.pdf?MOD=AJPERES

Between the floating notes and the PIK notes thats €823 M that could be carved off the debt.

But lets be honest.

• The Minister doesn't want to do it.
• The department doesn't have the technical ability to attempt what you're suggesting
• The assistant secretary of the department has stated repeatedly that 2Mb/s is adequate.
• There is no money.

(more on "hellas" here)

Sponge Bob

clohamon wrote: »

Yes but…..

The state cannot subsdise Eircom
The state cannot subsidise Eircom's competitors
The state cannot compete with Eircom

All Correct. Save latterly for the Euro 2020 plan and the 100mbit for 50% of the population and 30mbit for the rest plan.

……and judging by those results Eircom could stagger on for another ten years; not installing fibre itself while preventing others, including the state, from doing so either. The deadlock will remain until Eircom is cleared off the pitch.

They can't. They can stagger along untill maybe 2014. Then they gotta refi €2bn of current Euribor + 200bp bonds at something more like Euribor +1000bp

The State has to buy Eircom (wholesale) or regulate it into receivership and then buy the assets or do so after STT has disposed of the bondholders...

The state does not regulate. They hire arms length type like O Doherty to pretend to regulate. This time STT are not quite in the same position they were in c.2002/2003 when they forced Global Crossing bondholders to take an 80% hit. I think some exit mechanism will be found for STT at face.....but don't ask me what it will be. They are only in for €130m or so.

But lets be honest.

• The Minister doesn't want to do it.
• The department doesn't have the technical ability to attempt what you're suggesting
• The assistant secretary of the department has stated repeatedly that 2Mb/s is adequate.
• There is no money.

There was no money in 1985 but a smidge of long term thinking still existed.

Let's try.

• The minister hasn't a clue and does not know what a start gate is.
• The department is basically dysfunctional, reverse them into a functional one
• The assistant sec will prioritise his tax free gratuity over the needs of the state,way it is.
• There is no money.....unless there is a clear plan that the EIB/EC will buy into to an extent.

But the eircom situation will come to ahead by 2014 absolute latest, the PIK refi @ euribor + 2000bp in 2016 or 2107 will never happen.

watty

news report today
http://www.independent.ie/business/irish/employeeowned-stake-in-eircom-being-valued-at-zero-by-investors-2198099.html

By John Mulligan

Friday May 28 2010

The employee-owned stake in Eircom is effectively being valued at zero by investors who are trading so-called payment-in-kind debt notes (PIK) in the company at just 10pc of their face value.

One senior market source told the Irish Independent yesterday that investors were effectively betting that Eircom could be forced to engage in what is known as pre-pack administration -- where bondholders take a massive haircut on their investments.

Sponge Bob

The PIK is a junior part of the debt structure , ie payable after the senior part.

If the PIK is trading at 10c on the €1 in secondary markets then the senior is trading at perhaps 60c in the € on the same markets. The PIK is due in 2016 or 2017.

The prepack examinership...a quick squirt into the bankruptcy courts and out again...would essentially formalise the prices offered for eircom debt on the secondary markets. The shareholders will have to do this while they have some control over eircom, if they default they may lose that control to the bondholders.

Currently eircom has enough cash in hand to last most of 2010 while letting the value of the bonds/pik drop on the secondary markets and making the bankruptcy procedure easier. They can pick their time to go , possibly even next year ....but not after they run out of cash.

In fact eircom probably have more accountants planning the bankruptcy than they do dealing with regulatory matters...for the first time ever.

rob808

Sponge Bob wrote: »

The PIK is a junior part of the debt structure , ie payable after the senior part.

If the PIK is trading at 10c on the €1 in secondary markets then the senior is trading at perhaps 60c in the € on the same markets. The PIK is due in 2016 or 2017.

The prepack examinership...a quick squirt into the bankruptcy courts and out again...would essentially formalise the prices offered for eircom debt on the secondary markets. The shareholders will have to do this while they have some control over eircom, if they default they may lose that control to the bondholders.

Currently eircom has enough cash in hand to last most of 2010 while letting the value of the bonds/pik drop on the secondary markets and making the bankruptcy procedure easier. They can pick their time to go , possibly even next year ....but not after they run out of cash.

In fact eircom probably have more accountants planning the bankruptcy than they do dealing with regulatory matters...for the first time ever.

My question is if eircom go under what would happen it customers and the network?.This probably will not happen but still if it did then what could be done about it.

Sponge Bob

rob808 wrote: »

My question is if eircom go under what would happen it customers and the network?.This probably will not happen but still if it did then what could be done about it.

It never goes under in terms of service, it stops paying its bonds and writes a load of them off and re emerges minus a stack of debt.

eircom continues to generate cash but not enough of it. The longer they hang in waiting for the inevitable default the worse the network gets. A default and a prepack administration in the second half of 2010 or first half of 2011 is the most likely outturn. The sooner the better, frankly.

STT will make their money back on long term contracts tied into the 'rescue' as it will be presented to everyone when it comes about. They will be looking at writing off around €2.5bn-€3bn of the debt but will not be able to get it below €1bn and would be lucky to get it to €1.5bn

Meanwhile we must wait

clohamon

Sponge Bob wrote: »

They will be looking at writing off around €2.5bn-€3bn of the debt

Meanwhile we must wait

AFAIK most of that debt is in term loans; unless they've been securitised. I would assume that the banks have a charge on all the assets.

If so, it would only be the PIK notes and the floating notes that are at risk from pre-pack administration.

watty

Well.. They paid what, €180m?

If the market was OK, Meteor is worth about €1B.
so if they get the debt down to €1.5B ish they maybe break even and can think of investment. Or selling Meteor. Or both.

clohamon

Sponge Bob wrote: »

Meanwhile we must wait

Maybe not much longer

Eircom debt holders appoint NY law firm

A GROUP OF Eircom debt holders has appointed a leading New York law firm to represent it in the event of the Irish company seeking to refinance its €3.3 billion net debt.

Wall Street law firm Cadwalader has been chosen by holders of 56 per cent of Eircom’s floating-rate note (FRN) holders to advise them ahead of any debt management exercise by Eircom.

It is understood that these FRNs – bonds that have a variable coupon or interest rate – represent €350 million of Eircom’s debt. This money is due to be repaid in 2016.

http://www.irishtimes.com/newspaper/finance/2010/0619/1224272868560.html

clohamon

THE PRICE of debts issued by subsidiaries of Eircom fell yesterday amid concern that the company may breach loan covenants.

The €350 million floating-rate notes of ERC Ireland Finance Ltd fell to a record low at 37 per cent of face value, according to Royal Bank of Scotland.

The company’s senior loans were quoted at between 77 per cent and 79 per cent of face value yesterday, compared with 80 per cent from last week, according to Cantor Fitzgerald.

http://www.irishtimes.com/newspaper/finance/2010/0626/1224273362263.html