Denis O’Brien may cede 49% of Digicel empire under debt write-down plan

Businessman Denis O'Brien may end up handing over 49 per cent of his Digicel phone empire under a complicated debt-restructuring plan aimed at creditors writing off $1.7 billion (€1.55 billion) of what they are owed.

The move would reduce Digicel’s total debt by almost 25 per cent from its current level of $7 billion, which is viewed by the company and bondholders as unsustainably high following years of declining earnings.

The company said on Thursday it is looking for current investors in a series of bonds, including $1.3 billion of notes that are due next April, to exchange their securities for bonds of lower value. The biggest write-offs are being sought from bondholders who already agreed in early 2019, after months of hard negotiations, to delay getting their money back.

Two categories of bondholders are being offered, as an incentive to sign up to the deal, a total of $200 million of convertible notes in a new company being set up near the top of group’s corporate tree, called Digicel Group 0.5 Limited, which will ultimately own its assets across the Caribbean, Asia Pacific and Central American markets.

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These bonds would be convertible into a 49 per cent stake in the empire if they remain outstanding three years after the debt restructuring, according to documents relating to the deal.

Highly motivated

Digicel and Mr O’Brien, who owns 99.9 per cent of the company, will be highly motivated to redeem these bonds in the interim, helped by the fact that the group will have a much lower debt pile as well as signs that earnings have stabilised in recent quarters. The debt restructuring plan is aimed at saving $130 million in annual interest payments.

Sources said Mr O’Brien has offered to pump about $50 million of fresh equity into the group under the debt overhaul plan, comprising $25 million in cash and the group’s Jamaican headquarters, which he owns and is valued at $25 million.

“Despite many years of significant investment in its world-class networks and infrastructure and solid underlying performances across its markets, Digicel’s current debt levels remain high,” the company said. “Digicel has indicated for some time its commitment to reducing its debt to more sustainable levels and the tender offers and consent solicitations are a key step in that process.”

Meanwhile, the company is also looking for holders of a certain category of note co-issued by Digicel Holdings (Bermuda) Limited and Digicel International Finance Limited (DIFL) to ease the terms of their documents to allow DIFL to draw down up to $100 million from its senior credit facility with banks.

Tumbled in value

Digicel’s bonds have tumbled in value in the past 12 months amid mounting concerns about how sustainable the group’s debt mountain is following earnings declines in recent years.

The company, set up by Mr O’Brien in 2001, operates in 32 markets across the Caribbean, Central America and Asia Pacific regions. While it had seen an improvement in its earnings in recent quarters, following years of decline, the view among financial analysts was that its debt level was unsustainably high.

Earnings before interest, tax, depreciation and amortisation (Ebitda) rose by 4 per cent year-on-year to $251 million in the third quarter of Digicel’s financial year, to the end of March.

This was driven by more favourable currency movements in some of its main markets against the dollar, and ongoing data revenue growth, which has offset declining voice sales in its mobile division.

Developing networks

Digicel has spent $6 billion developing its networks and the business has 14 million subscribers. Mr O’Brien took at least $1.9 billion of disclosed dividends out of the group between 2007 and 2015.

The current debt negotiations come a little over a year after bondholders who were owed almost $3 billion agreed to postpone getting their money back by accepting longer-dated notes in exchange for their holdings.

Debt ratings firm Fitch had downgraded its view of Digicel’s creditworthiness to C, or nine levels deep in junk bond territory, hours before the firm details of the latest debt restructuring plan were announced.