eircom finally defaults

Sponge Bob

eircom are scheduled to release their Regulatory Accounts this week or next week.

they are due to go into Examinership for at least 30 days, starting in about a months time.

http://www.independent.ie/business/irish/eircom-rating-cut-over-selective-default-3029068.html

RATING agency Standard & Poor's said Eircom is in "selective default" after missing an interest payment to bond holders.

The Eircom interest payment has officially only been suspended, but no one inside the company or in the markets expects the €5.77m payment due ever to be paid.

MagicMarker

What's the worst case scenario here?

gordongekko

MagicMarker wrote: »

What's the worst case scenario here?

Eircom survives in its current format

Solair

I think at this stage, it's in the national interest that the telecommunications infrastructure that makes up eircom is sold in a debt-free way, to an actual telecommunications company that wants to run it for profit rather than just speculate on its share price!

Eircom's corporate interest does not equate with the national interest and I would sincerely hope that nobody considers any kind of a bale out for them. They are absolutely not necessary, the infrastructure is though! Remember, at this stage, eircom is basically an indirectly Singapore Government owned entity!

Any telecommunications operator here is subject to a licensing regime. Their license could quite easily be pulled if they fail to meet certain requirements. In that case, it would be auctioned and other providers could purchase the operation as a going concern or the state could perhaps purchase (at a very very discounted price) the local access infrastructure to create a more level play field and correct the grave error that was made by selling off the whole network to one company.

I would also suspect that any state aid to eircom would probably be illegal under EU competition law and it would be HEAVLY challenged by eircom's competitors too.

Sponge Bob

http://www.bloomberg.com/news/2012-03-20/erc-ireland-finance-in-failure-to-pay-credit-event-isda-says.html

Credit-default swaps on Eircom Group Ltd (ERU).’s parent ERC Ireland Finance Ltd. will be settled after the International Swaps & Derivatives Association said there has been a failure-to-pay credit event.
ISDA’s determinations committee ruled an auction will be held “in respect to outstanding CDS transactions,” it said in a statement. There were 2,080 swaps contracts covering a net $293 million of the Dublin-based phone company’s debt as of March 9, according to the Depository Trust & Clearing Corp., which runs a central registry for the market.
ERC Ireland Finance was cut to ‘selective default’ from CC by S&P last month after the company missed a coupon payment on its floating-rate notes. Eircom, seeking to restructure 3.75 billion euros ($5 billion) of debt, may seek protection from creditors as early as this month, three people with knowledge of the matter said Feb. 15.
Eircom said March 14 it supports “in principle” a restructuring proposal submitted by a group of first-lien, or most senior, lenders. They proposed writing off 15 percent of their loans, double the amount previously planned, in exchange for full control of the company, two people with knowledge of the matter said that day.
The first-lien lenders, led by two Blackstone Group LP units, envisage second-lien lenders recovering 35 million euros, or 10 percent, of their loans, with more junior creditors losing virtually all their investment, according to the people.

Next up is the big default on the second lien and the small reduction in first lien debt. Both will trigger Credit Insurance events.

Sadly the latest restructuring proposals will leave eircom with an unfeasible €2.1-2.2bn of carried debt thereby ensuring a further default in around 3 years time.

But expect lots of PR flannel and froth fairly shortly.

Solair

Doesn't sound good!

Head The Wall

Will the ESOT lose their share of Eircom in this, can't say I'd be sorry, they have been complicit in the raping of the company and are why it is where it is today. Short term thinking at its finest.

Sponge Bob

ESOT and STT are gone, they are totally wiped out along with the junior debtholders.

The problem is the senior debt is not being written down to a level that permits debt servicing and investment in order to survive. The senior debt holders now own and control eircom in effect.

Solair

I sincerely hope it's sorted out soon.

I really think that eircom would be better off as part of a larger European telco. It's been unable to develop as a speculators' plaything.

It needs access to technological resources and also long term investment by a company that actually wants to run a phone company, not just make a quick buck!!

If you compare Chorus to UPC you see a similar scenario. It improved by leaps and bounds when it integrated with a big pan European operator!

The last thing eircom needs is protracted ownership by financial services companies !!

Sponge Bob

That is what it faces unless they write the debt ( ie the bonds held by the expected new shareholders) down by another €1bn or so.

At around that point....€1.4bn debt not €2.4bn debt........ it will acquire a positive net value....around €1 or so and they can then sell it off for €1 with a sustainable and fully performing debt.

The current proposal, a partial debt writeoff, ensures it will default again in future. I give it 3 years.

Sponge Bob

Vote tomorrow on the restructuring and the CEO has just announced he is legging it later this year.

http://www.rte.ie/news/2012/0327/eircom.html

helimachoptor

That's not surprising, he'll pop up within a few months of leaving eircom

Sponge Bob

I think the Prepack Bankruptcy (called an Administration in the UK or an Examinership in Ireland) is planned for tomorrow or friday. Not sure which jurisdiction.

Sponge Bob

Breaking News. Here and Today.

http://www.irishtimes.com/newspaper/finance/2012/0329/1224314047013.html

EIRCOM IS expected to petition the High Court today to enter examinership to give effect to a consensual restructuring of its debt load.

Sponge Bob

Sponge Bob wrote: »

Sadly the latest restructuring proposals will leave eircom with an unfeasible €2.1-2.2bn of carried debt thereby ensuring a further default in around 3 years time.

Three ( their parent actually, Hutchison Whampoa) have made a most generous €2bn cash offer for eircom and that is the best offer they will get between now and what inevitably will become Default #2 in around 3 or 4 years time. .

http://www.irishtimes.com/newspaper/finance/2012/0511/1224315905230.html

Some wonder why Hutchison/3 left it so late to table an offer for Eircom. Morgan Stanley ran a sale process just before the examinership was put in train.


This might have something to do with the price (that was) being sought – thought to be €3 billion-plus. Hutchison/3 seems to value Eircom at €2 billion, end of story.


Goldman Sachs has advised the Hong Kong-based company on the bid. It has form with Eircom, having advised Sir Anthony O’Reilly’s Valentia on its takeover of Eircom and helped it to IPO.


Unless Goldman Sachs can pull a rabbit out of a hat in the next couple of days, the bid looks doomed. It will become a mere footnote in the weird and wonderful story of Eircom post privatisation.

We shall see. If Hutchisons bid is rejected then the whole sorry mess will continue.

Sponge Bob

Hot off the press. The €2bn bid was rejected and the scheme to leave eircom carrying €2.3bn of debt is going to a vote next friday.

approval. Roll (slowly) on the next default.

.....unless maybe Hutchison bid €2.1-2.2bn in the meantime. We'll know by monday.

http://www.irishtimes.com/newspaper/breaking/2012/0511/breaking20.html

Mr McAteer last night last night rejected a revised cash offer for Eircom from 3 Ireland and its Hong Kong-parent group Hutchison Whampoa.

Solair

That doesn't sound great to be honest. I can't see many other bidders being that interested in eircom, particularly given the state of the Irish economy and its dependence on the Irish consumer market.

gbee

Solair wrote: »

That doesn't sound great to be honest. .

I'd take the view that the 3 Mobile network has set a reputation for 3 Telco and TBH, I'd prefer to see Eircom getting another bailout of tax payers money.

Now, if Sir Richard Branson expressed an interest, I'd grab it with open arms and think him a saviour.

Sponge Bob

Nobody else will offer €2bn for it . Morgan Stanley hawked it around at €3bn and were laughed at.

Someone else ( O Brien ???) offered €1.7bn for it and I reckon €1.5bn is fair value...unless the social welfare benefits are cut entirely which alone could cost eircom 100k customers overnight.

UPC added 25,000 Telephone Customers in the last quarter alone which is even more impressive when you realise that this Telephone service is only available to 700k homes in large towns and cities.

That is analagous to eircom picking up 75k new telephone connections in a QUARTER considering their much wider reach to the 2m homes and 100k businesses in the state...3x that of UPC at present.

The punters are jumping because of the outrageous line rental charges and no next generation nuthin will get most of them back to eircom.

AlmightyCushion

Sponge Bob wrote: »

Hot off the press. The €2bn bid was rejected and the scheme to leave eircom carrying €2.3bn of debt is going to a vote next friday.

approval. Roll (slowly) on the next default.

.....unless maybe Hutchison bid €2.1-2.2bn in the meantime. We'll know by monday.

http://www.irishtimes.com/newspaper/breaking/2012/0511/breaking20.html

I remember reading somewhere else that Hutchinson Whampoa were going to invest 1.3B in the eircom network. If true that would be brilliant. I am wary of them taking over eircom (3's customer service is woeful at best) but they have the money and seem willing to invest. We really need eircom to start competing and sticking it to UPC.

Solair

gbee wrote: »

I'd take the view that the 3 Mobile network has set a reputation for 3 Telco and TBH, I'd prefer to see Eircom getting another bailout of tax payers money.

Now, if Sir Richard Branson expressed an interest, I'd grab it with open arms and think him a saviour.

On what basis would the state bale eircom out?

It's a private company, owned largely by the Government of Singapore via a chain of investment funds.

Previous owners failed to invest in its telecommunications business and left it with vast amounts of debt.

So, it's now saddled with a massive debt and hasn't invested in infrastructure so it is being absolutely wiped out by UPC who are using vastly superior broadband technology.

Eircom is not a state owned company, and it is likely that the EU would see any bale out as illegal state aid to a private corporation.

The state itself is also insolvent, so where exactly would it get the money to go around baling out badly run telecoms companies?

You can be sure that any attempt to do that would result in eircom's competitors taking legal action against the state to prevent it.

Eircom will be purchased at a huge discount, if not by 3, by someone else.

Sleepy

gbee wrote: »

Now, if Sir Richard Branson expressed an interest, I'd grab it with open arms and think him a saviour.

Branson wouldn't touch it with a barge pole. After Virgin's experience with previously state-owned unions at SN Brussels Airlines taught him that it's cheaper to pay the costs involved in a start-up than to deal with them.

uncle_sam_ie

Sponge Bob,
What will this mean for the infrastructure in years to come? What will it mean to those living outside the cities that can only get eircom's DSL?

Solair

Sleepy wrote: »

Branson wouldn't touch it with a barge pole. After Virgin's experience with previously state-owned unions at SN Brussels Airlines taught him that it's cheaper to pay the costs involved in a start-up than to deal with them.

Eircom isn't state-owned and hasn't been for 13 years. It's union issues are largely over and done with, other than the legacy of pension funding.

It's staffing levels are probably quite small for the kind of company it is and its mobile arm was never publicly owned.

Meteor was a slim, cut-throat private operator and late entrant to the Irish market that aggressively grabbed market share. It still is very much in that mode.

Eircom's problem isn't marketing / branding or sales. It's problem is that it was asset-stripped by investment funds who left it with a huge legacy of debt (all of which was used to purchase itself!)

The day-to-day operations of eircom were hobbled by the fact that it never had the ability to invest in its own networks which has left it about 5 to 10 years behind UPC, its main competitor.

The best thing that could possibly happen to this disaster of a situation now is that eircom's examinership finds it a new owner that can run it as a phone / broadband company and not as a speculators' plaything.

Kristopherus

The Examiner has now agreed to apply to the High Court to take Eircom out of examinership. This is being done in agreement with the (Senior) lenders. What does all that mean? Is there a white knight???

PseudoFamous

gbee wrote: »

I'd take the view that the 3 Mobile network has set a reputation for 3 Telco and TBH, I'd prefer to see Eircom getting another bailout of tax payers money.

What's wrong with 3, exactly? They're as good a bidder as any, and if they're willing to invest and bring a modern net infrastructure around, I surely won't complain.

A Primal Nut

Most of the Eircom debt was put on them by their previous owners, who transferred the debt from other companies to Eircom. Eircom itself has always been a profitable company.

Sponge Bob

uncle_sam_ie wrote: »

Sponge Bob,
What will this mean for the infrastructure in years to come? What will it mean to those living outside the cities that can only get eircom's DSL?

The problem is that they will carry TOO much debt AFTER the restructuring and exit from examinership. They needed to write it own to around €1.5bn from €3.8bn or so. They only wrote it own to €2.3bn.

Therefore there will be no investment in rural areas only in cities where UPC is killing them. They will upgrade exchanges with banjaxed ATM gear to NGB as required because the ATM spares are starting to get scarce and costly now. There are a good dozen rural exchanges out there that were promised basic ADSL1 broadband in April 2007 and still haven't been upgraded 5 years later. Another 250 (mainly rural) exchanges were promised (and got) nothing at all beyond dialup.

In the last quarter alone fully 4% of all the homes in Ireland that COULD take UPC Telephone services signed up to that very UPC Telephone service. 25,000 out of around 700,000.

Were that growth in UPC telephony customers to be sustained in future then every urban residential customer of eircoms would have abandoned them by the end of 2018.

Entirely their own fault, they were a cash cow for a clique withn the union and the likes of George Soros for years.

When eircom was floated the company was valued at around +€7bn of which the exchequer got €5bn.

Before the debt writeoff it was worth -€3.8 bn and less the €2bn Hutchison were prepared to pay reducing its negative net value to -€1.8 bn

This is a net turnaround of -€8.8bn in value since 1999. Genius or what!

Lemming

gbee wrote: »

Now, if Sir Richard Branson expressed an interest, I'd grab it with open arms and think him a saviour.

I wouldn't be so quick to cheer-lead Virgin taking ownership. Here in the UK, if you're on Virgin cable you're sorted, but if you're a DSL customer i.e. reliant on interacting with third party engineers, you are a second class citizen. I've had more than a few frustrating moments/days/weeks with their DSL service (having experienced their cable service).

Sponge Bob

The junior bondholders are in court today.

http://www.irishtimes.com/newspaper/finance/2012/0516/1224316193008.html

New York-based DW Investment Management LP, which is representing 52.4 per cent of creditors holding €350 million in floating rate loan notes (FRNs) in Eircom and Hutchison Whampoa Ltd (HWL), parent company of mobile phone operator 3 Ireland, have taken proceedings following a decision last week by Eircom examiner Michael McAteer of Grant Thornton to reject a revised €2 billion cash offer from 3 Ireland and HWL.

Thats because the Hutchison takeover includes a few squiddlys for the junior bondholders where the examinership leaves them with a 100% loss.

The applicants are seeking directions requiring the examiner to engage with them and allow them access to Eircom’s management team, to the electronic data room containing information relating to the companies and to a business report prepared by Ernst Young.

They also want access to a valuation report prepared for the examiner by Jefferies International.

This is becoming rather tedious.