Denis O’Brien’s Digicel seeks to raise $1bn to refinance near-term debt

Businessman Denis O'Brien's mobile phone group Digicel, which recently embarked on its biggest-ever cost-cutting programme to reboot flagging earnings, is at an advanced stage of raising more than $1 billion (€920 million) of debt to refinance borrowings that fall due over the next two years.

The group's Digicel International Finance Limited subsidiary, which owns assets across the Caribbean, is raising $935 million in senior secured loans that are due to be repaid within the next five to seven years, according to credit ratings agencies. It is also seeking to secure a $100 million revolving credit facility.

The proceeds will mainly be used to redeem the company’s $856 million existing secured loan, which it must repay between March 2018 and March 2019.

A deal would give Digicel, which operates in 31 markets in the Caribbean, Central America and South Pacific, significant financial headroom as it focuses on a massive restructuring programme. The group revealed in February it plans to cut more than 1,500 jobs, or a quarter of its workforce, over 18 months to improve earnings, which have fallen in each of the last seven quarters amid currency weakness in some of its main markets and heavy investment in its networks.

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The group’s $6 billion-plus debt mountain stood at about six times earnings before interest, tax, depreciation and amortisation (ebitda) in December. It has committed to debt investors to lowering this ratio to 4.5 within the next two years.

"Refinancing of the existing credit facilities improves its financial flexibility as the group will not face any sizeable debt maturities until 2020, when its bonds start becoming due," said Fitch, the ratings agency, in a note.

While Digicel still has $80 million of debt maturing at its Digicel Pacific Ltd unit in August, Fitch expects it to be “comfortably” met with additional money being raised in the new debt issuance.

High debt levels

Moody’s said Digicel’s creditworthiness, which rated non-investment grade or “junk”, is constrained by the group’s high debt levels and “aggressive financial policy, which includes frequent debt-funded acquisitions and opportunistic dividend payments”.

Mr O’Brien, who set up Digicel in 2001, received $1.1 billion in dividends from the group in the three years to the middle of 2015. This includes special dividends and a quarterly $10 million payment. He stopped taking the regular $10 million dividend in late 2016 and committed to debt investors in Digicel that he would not take any more payments until the company’s finances improved.

Moody’s said it could upgrade Digicel’s rating “if the company showed continued restraint with respect to dividends” and if it demonstrated that it was on track to lower its debt to four times ebitda.