Digicel eyes maturing $925m bond as earnings drop

Denis O’Brien’s Digicel has said that it is “confident it is well positioned” to deal with a $925 million (€933 million) of bonds that fall due in less than six months, even as unfavourable foreign-exchange movements drag on earnings and Fitch issued a fresh warning of a potential debt default.

The telecoms group told bondholders in recent weeks that its earnings before interest, tax, depreciation and amortisation (Ebitda) dipped 2 per cent to $241 million in the three months through June, its financial second quarter, as it took a $16 million hit from currency weakness in some of its main markets, led by Haiti, against the dollar.

Still, underlying earnings rose 5 per cent on the same period last year, in line with Digicel’s own guidance. Digicel now operates in 25 markets across the Caribbean and Central America.

Currency woes also saw an underlying 9 per cent increase in service revenues for the quarter, to $585 million, translate into a 4 per cent increase in reported revenues. The figures were provided by sources, as Digicel does not currently publicly comment on its financial results.

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The market value of $925 million of bonds that mature in March 2023 has fallen to less than 64 cent on the dollar from a near-par value of more than 98 cent in January, on mounting concerns about the telecom group’s ability to refinance the debt amid turbulent global debt markets.

Fitch, one of the world’s leading credit ratings agencies, moved over the weekend to downgrade its stance on Digicel’s creditworthiness to CCC-, a very risky rating that is nine rungs deep into what is considered non-investment grade, or junk status.

Fitch warned that even though Digicel used $1.1 billion of the net $1.3 billion of initial proceeds from the sale of its Pacific operations to redeem bonds due in 2024, there are “elevated” risks that it will not be able to refinance the 2023 bonds without a debt restructuring.

Digicel bondholders were forced to write off $1.6 billion of the company’s then $7 billion of borrowings in June 2020, as they faced losing more in the event of a liquidation at the time, as its debt burden became too much following years of earnings decline.

A spokesman said the remaining proceeds from the Pacific unit sale and “the strength of its underlying business” mean that Digicel is “confident it is well positioned to address upcoming maturities ahead of time”. He declined to comment on whether dealing with the debt would involve a fresh bond sale to raise funds, which would be a first since Digicel’s 2020 distressed debt restructuring, or bondholders being asked to take another so-called haircut on what they are owed.

Fitch said the group’s ability to successfully refinance the $925 million of March 2023 bonds “outside of a coercive exchange remains uncertain due to deteriorating macroeconomic fundamentals, rising interest rates and unfavourable market conditions”.

“There is a low margin of safety for the company, and a default and/or default like process is a real possibility,” it said. “In Fitch’s view, there is an increasing likelihood a comprehensive restructure across the various entities due to the maturity of more than 70 per cent of the group’s consolidated debt within two years.”