EIRCOM’S PARENT company, ERC Ireland Finance, is likely to default on its debt, according to Moody’s.

The credit ratings agency yesterday downgraded ERC’s debt to “Caa2” from “Caa1” and said the outlook on the company’s ratings was negative.

“It is unlikely that Eircom will be able to avoid restructuring its balance sheet which could result in a loss for current debt-holders,” Moody’s said.

The phone company’s management has already acknowledged that it is likely to breach its financial covenants within three months as revenues and earnings continue to come under pressure.

As well as the difficulties posed by a short-term covenant breach, Eircom’s capital structure is “unsustainable” because of the company’s weakening operating performance, Moody’s said.

Although Eircom warned of a likely breach in financial covenants in the next three months, interim chief financial officer Mark Wilson said last week that the company was “very optimistic” that it could resolve its debt situation this year.

Eircom’s net debt stood at €3.1 billion as of March 31st, with no further repayments scheduled before June, the company indicated. It has launched new “incentivised exit” schemes to reduce its employee numbers. – (Additional reporting: Bloomberg.)