Denis O'Brien's Digicel phone group had a $4.2 billion (€3.8 billion) deficit on its balance sheet before it turned to bondholders in recent months to ask them to write off much of what they are owed, new documents reveal.
Filings submitted by Digicel units to the US Securities and Exchange Commission (SEC) late last week show that the technical shortfall at the ultimate parent company, resulting from setting assets against borrowings and other liabilities, grew as the business made a combined net loss of almost $700 million (€640 million) in the 3½ years through last September.
It is understood that Digicel values its assets at cost, minus depreciation, and does not reflect market value.
Still, the company concluded that a planned debt restructuring announced in early April, which will see bondholders write off $1.6 billion (€1.4 billion) of its $7 billion debt pile, is a “superior” outcome for creditors to any other option considered, including liquidation, according to the documents.
Extensive negotiations
“The proposed restructuring has been formulated on the basis of extensive negotiations with [a group of bondholders] , with the objective of treating all stakeholders fairly and in accordance with their respective legitimate expectations and following a comprehensive consideration of the strategic options available to the company,” according to one of the filings.
“The scope of feasibility of these options have been limited as a result of confidence in the company being undermined due to successive years of net losses and recent unprecedented market turbulence occurring as result of the Covid-19 pandemic, the duration of which remains unclear.”
The Digicel debt restructuring will see five classes of bondholders swap their notes for securities of a lesser value in an arrangement that has been described by credit ratings agency Moody’s as a “distressed debt exchange, which is a default” in its books.
The complicated deal involves a new company called Digicel Group 0.5 Limited being set up near the top of its corporate tree to ultimately own its assets across the Caribbean, Asia Pacific and Central American markets – and the orderly winding up of two other holding companies.
Liquidators
The first of these, Digicel Group One Limited (DGL1), which currently holds the Caribbean, Asia Pacific and Central American assets, had provisional liquidators appointed in Bermuda at the end of April and filed for Chapter 15 bankruptcy recognition in the US courts in recent days.
The SEC filings show that KPMG Ireland, which was appointed to value the assets of DGL1 as talks with bondholders were under way in recent months, concluded that a firesale of its assets would only raise between $484.7 million (443.4 million) to $629.3 million (€575.7 million).
This would only have led to a partial recovery for senior unsecured creditors over three years as DGL1’s unsecured bondholders faced wipeout.
Digicel has spent $6 billion (€5.4 billion) developing its networks over almost two decades across 32 markets. Mr O’Brien took at least $1.9 billion (€1.7 billion) of disclosed dividends out of the group between 2007 and 2015.
