Digicel downgraded by Fitch amid debt restructuring talks

Businessman Denis O’Brien’s Digicel has seen its credit rating downgraded by Fitch to a level defined as where a “default of some kind appears probable”, as the telecoms group seeks to restructure its debt with creditors.

Some $925 million (€868 million) of Digicel bonds fall due for repayment next Wednesday. The Irish Times reported on Thursday that the company is seeking an initial 30-day grace period before an event of default would be triggered, as it continues discussions on a debt restructuring.

Holders of more than 70 per cent of the bonds have already signalled support for such a standstill agreement, well above the 50.1 per cent threshold needed, say sources. They have also indicated a willingness to extend the grace period by a further 60 days if Digicel enters a restructuring support agreement in the meantime with owners of a majority of the notes, they said.

Fitch has downgraded Digicel by one level to CC, which is eight rungs deep into what is called junk debt territory and 17 grades below its top-notch AAA rating.

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This reflects “the increasing risk of a comprehensive restructuring with incremental debt being added to its capital structure or otherwise resulting in an outcome deemed by Fitch to be a distressed debt exchange,” the ratings agency said.

Digicel, which has $4.55 billion of bonds and corporate loans that are due to mature by the end of 2025, warned in November that public unrest and economic disruption in Haiti would result in earnings in one of its key markets sliding by as much as two-thirds in the second half of its financial year to between $25 million and $35 million. This would reduce the group’s full-year earnings before interest, tax, depreciation and amortisation to about $700 million.

Fitch said Digicel’s borrowing levels are “unsustainable” relative to earnings and that its operating performance “will be affected by the macroeconomic weakness in Haiti”.

The senior unsecured bonds that are scheduled to mature on March 1st have been trading below 40 cents on the dollar since late November, reflecting concerns about the Jamaica-headquartered company’s ability to repay the debt in full and on time, as well as ongoing turmoil across emerging market debt.