Digicel sees 75% take-up of $1.7bn debt write-off offer

Businessman Denis O’Brien’s Digicel has revealed that more than 75 per cent of creditors holding almost $5.1 billion (€4.7 billion) of the group’s debt pile have so far agreed to write off a significant amount of what they are owed.

Digicel, which has been left with an unsustainable $7 billion debt pile amid declining earnings in recent years, launched an offer late last month to five categories of bondholders to exchange their securities for bonds of lower value.

The restructuring plan is aimed at wiping $1.7 billion of debt – or a quarter of what it owes – in a process that has been judged by debt ratings firm Fitch to amount to a "distressed debt exchange".

Digicel said on Wednesday that between 86.9 per cent and 97.1 per cent of four classes of bondholders targeted have signed up to the debt exchange offer. This would allow the company to impose the deal more widely on holdout bondholders in those categories, if it chooses to use a legal mechanism open to it under Bermudan law, after passing the 75 per cent acceptances threshold.

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However, only 5.3 per cent of a fifth category of bondholders, who are owed $925 million that is due to be repaid in 2023, have so far backed the restructuring plan. The debt exchange offer is due to expire on April 28th.

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.

It has spent $6 billion developing its networks and business over the past two decades, driven by debt issued in the US junk bond market. The borrowings also allowed Mr O’Brien to take at least $1.9 billion of disclosed dividends out of the group between 2007 and 2015.

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.

Convertible notes

As an incentive to sign up to the deal, two categories of bondholders targeted by the restructuring plan have been offered 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. It will ultimately own the group's assets across the Caribbean, Asia Pacific and Central American markets.

These bonds would be convertible into a 49 per cent stake in the empire if they remain outstanding three years after the debt restructuring. 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 in recent quarters that earnings have stabilised.

Digicel said on Wednesday that, because more than 50 per cent of holders of most of the bond categories targeted by the debt restructuring have signed up to the plan, it has been able to eliminate restrictive debt covenants and events of default clauses from documents covering these securities.