Bond investors in Denis O’Brien’s Digicel face the risk of the group seeking another “comprehensive restructuring” of its “unsustainable” debt mountain as most of its borrowings fall due in the next two years, according to an analyst at Fitch.
The Irish Times reported earlier this month that Digicel has entered talks with some of its large bond investors to try to postpone repayment of $925 million (€873m) of debt that falls due in March.
It is the second time Digicel has sought to extend maturities on loans in four years. The company also moved in 2020 to inflict $1.6 billion of debt write-offs on bondholders, arguing they would have fared much worse in the event of a liquidation of the over-indebted company at the time.
The group currently has $4.55 billion of bonds and corporate loans outstanding, according to Bloomberg data.
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“Whether an extension of the final maturities of the 2023s is the final solution, we believe that there is a risk the group may enter a comprehensive restructuring, given that the level of debt relative to cash flow is unsustainable,” said Gilberto Gonzalez, a director of corporate credit ratings in Latin America for Fitch, in response to questions from The Irish Times.
“Importantly, over 70 per cent of the group’s debt is due within two years. These maturities need to be addressed when global interest rates are much higher than just a year ago, which also complicates the step-by-step approach.”
A spokesman for Digicel, which operates in 25 markets across the Caribbean and Central America, declined to comment.
The March 2023 bonds are currently trading at under 40 cents on the dollar, meaning investors can buy them on the open market for more than 60 per cent below their face value. That reflects worries about the company’s ability to repay the debt in full and on time, as well as ongoing turmoil across emerging market bonds.
Digicel used 85 per cent of $1.3 billion of net proceeds in July from the sale of its Pacific operations to redeem senior secured bonds that were scheduled to mature in 2024.
Meanwhile, some $440 million of outstanding unsecured bonds that fall due in April 2025 are currently changing hands in the market for less than 30 cents on the dollar.
“What we believe is that there is a low margin of safety for the group and a default or default-like process is a real possibility,” said Mr Gonzales, noting that this risk is reflected in Fitch’s CCC- rating on the group.
That stands 18 rungs below Fitch’s top-notch AAA rating and nine levels deep into what is referred to as a junk credit rating.
Digicel warned last month ago that ongoing public unrest and economic disruption in Haiti will see earnings in one of its key markets slump by as much as two-thirds in the second half of its financial year.
Digicel expects its adjusted earnings before interest, tax, depreciation and amortisation in Haiti to fall to $25 million–$35 million for the six months to the end of March from $74 million a year earlier.
