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.

To date, Eircom has not indicated publicly its intention to restructure its hefty debt pile, but its long-term financial structure is being looked at closely by management at the company.

Reports have suggested that an equity injection by shareholders, including the employee share ownership trust (Esot), which owns 35 per cent of the business, could be on the cards.

The Esot recently told its members that it would not make any further tax-free distributions until it had clarity on a new business plan being drafted by Eircom’s management team, led by chief executive Paul Donovan.

Speculation is mounting that Eircom will seek either to reschedule or reduce its debt by negotiating with its banks and bondholders.

This could involve debt holders being asked to take a haircut on their loans or a possible debt-for-equity swap.

The Irish company is believed to have chosen JPMorgan and Gleacher Shacklock, a boutique advisory firm that specialises in debt restructurings, to advise it on its long-term financial strategy.

This followed a “beauty parade” involving a number of leading international investment banks.

No comment was available from Eircom yesterday.

The FRN debt holders are considered to be mid-ranking in terms of Eircom’s liability – sitting between senior debt and those with PIK (payment-in-kind) notes.

Eircom had €280 million in cash on its balance sheet at the end of December 2009.

Its next major debt repayment is not due until 2014 when it must repay €1.2 billion to investors. Reports, however, have suggested it is under pressure to meet financial covenants with its lenders.

Eircom is one of the most indebted telecom companies in Europe, something that places a drain on its finances at a time when it needs to invest heavily in upgrading its copper network to fibre, thereby allowing it to offer “lightning-speed broadband”.

The Irish telco this week announced plans to invest €20 million in early 2011 in fibre network trials in Sandyford, Co Dublin, and in Wexford town.

Eircom said these trials would be opened up to its rivals. The company also reiterated its view that there should be industry collaboration in building a countrywide fibre-based network, which consultants have priced at more than €2.5 billion.

Tackling the debt was seen as key issue for Singapore-based ST Telemedia when it took ownership of the Irish business at about the turn of the year.