Denis O’Brien’s Digicel seeks to delay repayment of $925m of looming debt

Businessman Denis O’Brien’s Digicel is in talks with some of its large bond investors to try to postpone repayment of $925 million (€896m) of debt that falls due in March, in what could result in the telecoms group’s third debt restructuring in four years, according to sources.

The bonds were trading at just over 40 cent on the dollar on Wednesday, meaning investors can buy them on the open market for almost 60 per cent below their face value. That reflects worries about the company’s ability to repay the debt in full and on time, as well as ongoing turmoil across emerging market bonds.

Digicel executives revealed to bond investors on a conference call in recent days that it is in discussions with a number of bondholders, with the focus on extending the maturities of the March notes, the sources said. The talks were described as “constructive” and “ongoing”, they added.

A spokesman for Digicel, which operates in 25 markets across the Caribbean and Central America, declined to comment on the bondholder call.

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The disclosure came as Digicel reported to debt investors that its underlying revenue and earnings before interest, tax, depreciation and amortisation (Ebitda) rose in the three months to the end of September, Digicel’s financial second quarter, and it confirmed that it had chipped $1.2 billion off its debt pile with initial proceeds from the sale of its Pacific unit in July.

However, Fitch had said in September that Digicel’s ability to refinance the $925 million of bonds that mature at the start of March next year – even after the Digicel Pacific sale – was “uncertain”, without the company resorting to a “coercive exchange”. That is bond market terminology to describe how Digicel pushed debt investors in early 2019 into accepting delayed repayments of two years on $3 billion of bonds. It moved more aggressively the following year to inflict $1.6 billion of debt write-offs on bondholders.

Both deals involved the exchange of bond certificates for other notes.

The company had net debt of $4.2 billion at the end of September, equating to 5.9-times Ebitda over the preceding 12 months. The company had $498 million of unrestricted cash on its balance sheet at the end of the period.

The view that debt agencies take of any deal to come from the current talks may have large consequences for the future ownership of Digicel.

A small group of bondholders hold about $190 million of convertible notes in Digicel that would ordinarily entitle them to an almost 47 per cent equity stake in the business from June next year, if they are not bought back in the meantime. These bonds were issued in connection with the company’s 2020 debt restructuring.

However, documents on that restructuring say that Digicel cannot make any payments on the convertible notes if the group is deemed to have defaulted “and that default is continuing”.

Digicel’s underlying service revenues rose 4 per cent on the year to $465 million in the company’s financial second quarter. However, the impact of weak currencies in some of its main markets – including Haiti – against the dollar resulted in reported revenues being flat at $446 million.

While underlying Ebitda rose 6 per cent to $187 million, reported earnings declined 1 per cent to $175 million.

[ Digicel warns on Haiti earnings as $925m bond deadline looms ]

Meanwhile, Digicel warned three weeks ago that public unrest and economic disruption in Haiti will see earnings in one of its key markets slump by as much as two-thirds in the second half of its financial year.

Digicel it expects its adjusted Ebitda in Haiti to fall to $25 million – $35 million for the six months to the end of March – from $74 million a year earlier.