Digicel announces $700m bond plan

DENIS O’BRIEN’S mobile phone company Digicel has announced plans for a $700 million (€555 million) refinancing of its bonds.

Bermuda-registered Digicel Group Ltd (DGL) plans to launch a private placement of $700 million of senior notes that would be due in 2020.

Part of the net proceeds will be used to repurchase the entire tranche of DGL’s senior payment-in-kind (Pik) notes that are due in 2015. The amount outstanding on these notes is $415 million.

DGL will also repurchase up to $245 million of the 8.875 per cent senior notes due in 2015 via tender offers. According to a note from ratings agency Moody’s, about $1 billion currently remains outstanding on these notes.

The funds will also be used to pay any related fees and expenses, including applicable tender premiums and accrued interest on the notes.

Moody’s yesterday affirmed Digicel’s corporate family rating and probability of default at B2. It also maintained its “stable rating outlook”.

It said the transaction was beneficial to DGL due to the elimination of the Pik notes from the capital structure and the extension of the 2015 debt maturities, as well as the lower interest that will attach to the new bonds.

This is the latest in a number of fundraisings by Digicel on capital markets in recent years. In February 2012, DGL raised $250 million via a subsidiary to finance acquisitions.

Moody’s noted that while the company continues to have strong diversification across the Caribbean and Pacific islands, this is mitigated by its exposure to Jamaica (19 per cent of total revenue), which is struggling to revive its economy and is experiencing competitive telecom pricing.

DGL’s earnings before interest, tax, depreciation and amortisation (Ebitda) for the year ending March 2012 was $1.08 billion. The ratings agency expects the impact of the refinancing will reduce the company’s Ebitda by about $25 million a year.

However, Moody’s said this would be more than offset by expected strong GDP growth this year from Papua New Guinea (16 per cent of revenue) and Haiti (17 per cent of revenue) in the range of 6 per cent to 8 per cent respectively.

Moody’s is forecasting the company to end the year to the end of March 2013 with about $550 million in balance-sheet cash.

“Moody’s expects DGL to generate solid free cash flow of about $100 million (before special dividends) in full year 2013, as Papua New Guinea and Haiti contribute healthy cash flows,” the agency added.

It said given the incremental debt taken on by Digicel, the stable outlook reflected its opinion that despite continuing subscriber and cash flow growth, DGL was unlikely to drive its debt-to-Ebitda leverage to below four times over the ratings horizon.

Incorporated in Bermuda, with headquarters in Jamaica, Digicel is the largest provider of wireless telecoms in the Caribbean. Revenue for the 12 months ended June 30th, 2012, was $2.5 billion.