Two French firms controlled by billionaire Xavier Niel face a delay of at least one year in extracting a dividend from their investment in Eir, after the telecommunications group was saddled with more debt last week to help make a €400 million payment to two US hedge funds.
Executives at private French company NJJ and publicly-quoted Iliad, both controlled by Mr Niel, said last year, as the groups they took a combined 64.5 per cent stake in Eir, that they expected the Irish phone group to start making an annual dividend from this year, based on its financial performance.
However, sources have told The Irish Times that the prospect of this has been delayed by at least a year after Eir carried out a €1.15 billion debt issuance last week, part of which was used to finance a special “dividend” for shareholders.
The "dividend" is understood to have been given to a holding company one level above Eir. This was used to redeem a €400 million loan note issued to New York hedge funds Anchorage Capital and Davidson Kempner last year as they sold part of their stakes in the phone group.
Takeover
The two funds owned 56 per cent of Eir before last year’s deal. However, last year’s transaction saw the funds roll over a 35 per cent stake and sell their remaining 20.5 per cent interest to a holding company set up by Mr Niel to carry out the actual takeover.
The payment for the shares was by way of a loan note from the holding company, which is being redeemed by the proceeds of the special dividend.
In effect, the manoeuvre has saddled Eir’s balance sheet with the cost of taking out the loan notes, which were previously a liability of a holding company controlled by Mr Niel’s companies.
The move prompted ratings firm Fitch to downgrade the expected rating on the new debt, comprising bonds and loans, by one level to BB-, which is three notches below what it considers to be investment grade.
Fitch said that the additional debt will result in “temporary leverage pressure” on Eir, though sources have said that the company is now generating more than €200 million of free cash a year, double what it was making at the time of the takeover.
