ALREADY BATTLING an unwelcome takeover approach from its former management, Eircom came under further pressure yesterday when ratings agency Moody’s placed €3.65 billion of its debt under review for a possible downgrade.
Moody’s said the review reflected the unsolicited approach for Eircom’s immediate parent Babcock Brown Capital (BCM) from the TaemasBridge consortium, a group involving former Eircom chief executive Rex Comb and former BCM director Rob Topfer.
Mr Topfer orchestrated the takeover of Eircom by the now-bankrupt investment bank Babcock Brown, which set up BCM to manage the business and listed it on the Sydney stock market.
BCM, which has lost more than 55 per cent of its value in the past year, currently has a market capitalisation of A$167.9 (€90.6 million). The TaemasBridge approach values the fund at €95 million. BCM owns 57 per cent of Eircom, Babcock Brown affiliates own 8 per cent and the Eircom employee share ownership trust owns 35 per cent.
In addition to its concern about the TaemasBridge approach, Moody’s questioned BCM’s own strategic direction, Eircom’s weakening trading performance and looming costs arising from a restructuring package and its pension deficit.
“The TaemasBridge offer incorporates elements which could result in a debt restructuring of the restricted group,” the agency said. “In this regard, Moody’s notes that any restructuring involving a discounted offer on debt components of the capital structure could be considered a distressed exchange and, by implication, a default under Moody’s methodologies.”
On BCM’s strategic direction, Moody’s said the fund was believed to be considering alternatives for maximising the value of its investments.
It was also concerned about Eircom’s ability to meet future commitments set out in its current lending agreements.
In addition, Moody’s cited “the impact from pension deficits and cost restructuring measures on future cash outflows putting further pressure on free cash flow generation and credit metrics”.
Eircom is seeking 1,250 redundancies from its 7,500 staff. Its pension deficit exceeds €430 million.
