Six months after Denis O’Brien’s Digicel issued about $2.9 billion (€2.6 billion) of new bonds – a deal that effectively pushed out debt repayments – and the market is betting his emerging markets-focused telecoms group may have to come back with another restructuring plan before too long.
Following four months of negotiations, Digicel saw 98 per cent of the holders of $2 billion of bonds due for repayment in 2020 agree in January to postpone getting their money back from the debt-laden group, by swapping their holdings for notes that mature in 2022.
Almost all of the investors in a separate $1 billion of 2022 debt agreed to exchange their notes for new 2024 bonds. Almost $2 billion of the new bonds that were issued stand at the back of the queue to be repaid if the wider Digicel Group, which has some $6.7 billion of borrowings, runs into financial trouble in the future.
Investors buying into the riskiest 2022 bonds are currently demanding a market interest rate, or yield, of 71 per cent, with the notes changing hands at a little under 23 cent on the dollar. The 2024 bonds aren’t faring much better, yielding 61 per cent.
The group told bondholders last month that its quarterly earnings fell 9 per cent to $210 million for the three months to the end of March, its fourth fiscal quarter, showing that its much-hoped-for return to earnings growth had not materialised. Planned asset sales to further lower its debt burden have also drifted out.
Ratings agency Moody’s moved on July 12th to downgrade its ratings on the company, saying, “The risk of Digicel making another distressed exchange or debt restructuring within the next 12-18 months has increased, considering the still-weak operating results and liquidity of the group.”
While Digicel doesn’t have a major debt maturity until April 2021, when $1.3 billion falls due, O’Brien knows all too well that he needs to have this refinanced up to a year and a half in advance.
