Digicel announces plan to raise $700m in unsecured bonds

Denis O’Brien’s mobile phone group Digicel yesterday announced plans to raise $700 million (€523 million) in senior unsecured bonds.

The proceeds will be used to repurchase notes which are due for repayment in 2014 and carry a coupon of 12 per cent.

A tendering process began yesterday to to acquire these notes. Digicel said the principal amount outstanding on the notes was $510 million.

It has offered $1,068 to the bondholders for every $1,000 in notes that they hold. This includes a payment for agreeing to lift restrictive covenants around the notes and “certain events of default”.

If taken up in full, this would cost Digicel $545 million.

Declined to comment

Digicel declined to comment yesterday on its latest capital-raising programme or how the funds would be distributed.

A release on the fund raising stated that in addition to repurchasing any and all of the senior notes due in 2014, it also plans to pay any related fees and expenses.

In addition, it will use the money for “general corporate purposes”, which could include “capital expenditures, acquisitions, debt repayment or dividends”.

This raises the prospect of Mr O’Brien being paid a dividend from the proceeds of the funding round, as he owns Digicel. Mr O’Brien received a special dividend of $300 million from the mobile phone company in June 2012.

The tender offer is due to close at 5pm New York time on March 4th.

Ratings agency Moody’s yesterday assigned a B1 rating to Digicel’s proposed new senior unsecured notes, which will be due in 2021. Moody’s said Digicel’s rating outlook is “stable”.

Moody’s noted Digicel’s success in growing its operations in the Caribbean and deleveraging but said its rating was weighed down by a number of factors, including its “history of debt-funded acquisitions and sizable dividend payments”.

It also highlighted Digicel’s exposure to Jamaica, which accounts for about 18 per cent of total revenue.

Moody’s noted that Jamaica is struggling to revive its economy and experiencing competitive telecom pricing following the imposition of a new regulatory and additional government taxes.