Digicel may seek to refinance $1.3bn of debt at a discount

Businessman Denis O'Brien's Digicel may seek to refinance at a discounted price some $1.3 billion (€1.2 billion) of bond debt due to be repaid in early 2021, to take advantage of the fact that they are trading at a discount in the market, according to US debt research firm Xtract Research.

However, such a move would be considered by debt ratings agencies as a more aggressive distressed debt manoeuvre than the one completed by Digicel earlier this year. That involved persuading creditors holding $3 billion of bonds due in 2020 and 2022 to postpone getting their money back by a further two years by exchanging their notes for longer-dated paper.

The telecommunications group, which operates across 33 markets in the Caribbean, Central America and Asia Pacific regions, typically seeks to work on solutions between 18 months and a year before a major debt maturity. That means it is likely to engage with bondholders in the coming months on its $1.3 billion of March 2021 notes.

Leading credit rating agency Moody’s said on September 13th that Digicel’s weak finances means the risk is rising that the company will make “another distressed exchange or debt restructuring within the next 12-18 months”.

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Xtract Research analyst Nicole Green estimates that Digicel could raise up to $1.16 billion of fresh "structurally senior debt" to help refinance the 2021 bonds.

The group has a number of entities through which it has sold debt in the past as it built up an almost $7 billion debt pile. This means it faces restrictions under various covenants as to how much fresh debt – and at what part of the group – it can issue.

Investor concerns

Ms Green noted that with the 2021 bonds trading in the market at 71c on the dollar, this “may offer Digicel the opportunity to address the notes in a below-par exchange and preserve additional debt capacity”. A price of 71c, reflecting investor concerns over Digicel’s financial standing, means the $1.3 billion of bonds are only being valued at about $920 million by the market.

Digicel, set up by Mr O’Brien in 2001, saw the value of its bonds fall in late August as it reported that its revenue fell by 1 per cent on the year to $539 million in the three months to June, with currency weakness across some of its main markets driving the decline.

Earnings before interest, tax, depreciation and amortisation (Ebitda) dropped 2 per cent to $244 million, continuing a trend seen in recent years. Mr O’Brien scrapped plans to raise as much as $2 billion in an initial public offering (IPO) at the last minute in October 2015. The company had intended to use much of the IPO funds to pay down borrowings.