Digicel debt restructuring amounts to default, says Moody’s

Moody’s, one of the world’s leading credit ratings agencies, has said that Digicel’s plans to wipe away as much as one-quarter of its $7 billion (€6.5bn) debt through restructuring will amount to a default.

The emerging markets-focused phone group owned by businessman Denis O’Brien announced early last month that it was asking holders of five classes of bonds to wipe away a total of $1.7 billion of what they were owed by swapping their securities for notes of less value.

Digicel, which had been left with an unsustainably high debt burden following years of declining earnings, said last week that most of the bondholders had signed up to the offer. The fear is that creditors faced even larger losses if they did not agree to a consensual deal.

“The exchange offers are still ongoing but, if completed as proposed, we will consider them as a distressed exchange, which is a default under Moody’s definition,” the ratings agency said in statement issued late on Tuesday in New York.

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Moody’s rates the Digicel’s creditworthiness as Caa2, which is eight levels deep into “junk” bond territory and reflects the group’s “untenable capital structure and tight liquidity position” ahead of the debt restructuring being completed.

"It also considers Digicel's presence in emerging markets with a history of instability and exposure to adverse weather events, as well as its exposure to the risk of currency depreciation against the US dollar, especially in its three largest markets [Jamaica, Haiti and Papua New Guinea]," Moody's said. "At the same time, Digicel's rating takes account of its product and geographic diversification, strong margins and market-leading positions."

A completion of the debt overhaul plan would reduce Digicel’s debt burden to about six times earnings before interest, tax, depreciation and amortisation (Ebitda) from 7.7 times, currently.

Debt maturities

“It would also extend its debt maturities, with no large maturity before 2024, and reduce cash interest expenses, which would help the company improve its currently tight liquidity position,” Moody’s said, adding that it would reassess Digicel’s ratings once the debt-exchange offer had been completed.

Digicel, set up by Mr O'Brien in 2001, operates in 32 markets across the Caribbean, Central America and Asia Pacific regions.

Digicel has spent $6 billion developing its networks and the business has 14 million subscribers. Mr O’Brien took at least $1.9 billion of disclosed dividends out of the group between 2007 and 2015.

The current debt negotiations come a little over a year after bondholders who were owed almost $3 billion agreed to postpone getting their money back by accepting longer-dated notes in exchange for their holdings.