Businessman Denis O’Brien’s Digicel has asked investors in $925 million (€868 million) of bonds due to be repaid next week for an initial 30-day grace period before an event of default would be triggered, as it continues discussions on a debt restructuring, according to sources.
Holders of more than 70 per cent of the bonds have already signalled support for such a standstill agreement, well above the 50.1 per cent threshold needed, the sources said. They have also indicated a willingness to extend the grace period by a further 60 days if Digicel enters a restructuring support agreement in the meantime with owners of a majority of the notes, they added.
It would amount to a third debt restructuring by Digicel since early 2019.
‘Ongoing discussions’
“Given upcoming bond maturities and prevailing economic conditions in various markets, Digicel remains in active and ongoing discussions with its creditors and advisers on a number of strategic alternatives with respect to a potential financial restructuring,” a spokesman for the group said in response to questions. “The proposed grace period would provide the company with additional flexibility to facilitate any such restructuring.”
He declined to comment on the specifics of the grace period being sought or on the nature of the wider debt restructuring talks.
The senior unsecured bonds are scheduled to mature on March 1st and have been trading below 40 cents on the dollar since late November, reflecting concerns about the Jamaica-headquartered company’s ability to repay the debt in full and on time, as well as ongoing turmoil across emerging market debt.
The Irish Times reported in December that Digicel was in talks with larger holders of the bonds about the prospect of swapping the notes for longer-dated paper, with the aim of putting the outcome to all investors in the bonds.
It is understood that the discussions have since broadened to look at the group’s wider debt pile, with more than 80 per cent of its $4.55 billion of bonds and corporate loans due to mature by the end of 2025, at a time when earnings are under pressure. Market interest rates have also spiked globally in the past year, especially in the US junk-bonds market, where Digicel has traditionally sourced most of its debt funding.
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Digicel warned in November that public unrest and economic disruption in Haiti would mean earnings in one of its key markets slump by as much as two-thirds in the second half of its financial year to March to $25 million–$35 million. This would reduce the group’s full-year earnings before interest, tax, depreciation and amortisation to about $700 million.
Gilberto Gonzalez, a director of corporate credit ratings in Latin America for Fitch, said in December there was “a risk the group may enter a comprehensive restructuring, given that the level of debt relative to cash flow is unsustainable”.
He added that global interest rates have also jumped over the past year or so, further complicating a “step-by-step approach” to dealing with Digicel’s debt.
The company, which operates in 25 markets across the Caribbean and Central America after selling its Pacific unit last year, convinced holders of $3 billion of bonds in early 2019 to postpone getting their money back by two years. However, that accord was struck well in advance of the original bonds’ scheduled maturity dates in 2020 and 2022, respectively.
Over-indebted firm
Digicel subsequently moved in early 2020 to impose $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.
However, holders of the March 2023 bonds refused to share the losses at the time of that debt restructuring.
The company had managed to chip $1.2 billion off its debt pile last year with initial proceeds from the sale of its Pacific unit in July.
