Eir hedge funds ‘dividend’ upped amid €1.15bn debt-raise

Dividend replaces loan note the funds received for some of their shares last year

The additional funds being raised have resulted in the investor dividend being increased to €400 million

Two US hedge fund investors in Eir have seen the special "dividend" they will receive from the company under a refinancing rise to €400 million as the phone group raised a target-beating €1.15 billion in fresh debt this week.

On Tuesday, Eir launched an initial effort to raise €850 million to refinance €700 million of existing bonds and help the group pay what was called a €300 million dividend to New York-based hedge funds Anchorage Capital and Davidson Kempner, who own 35.5 per cent of the company.

The two funds had built up a combined 56 per cent holding in Eir in the wake of the group's 2012 examinership. They opted to sell part of their investment and roll over the remainder last April as two companies owned by French business tycoon Xavier Niel – NJJ and publicly-quoted telecoms group Iliad – bought a joint 64.5 per cent in the former State monopoly.

On Friday, Eir’s debt deal was increased to €1.15 billion, made up of €750 million of bonds priced to carry an interest rate of 3.5 per cent and a €400 million term loan that would replace more expensive existing facilities. The additional funds being raised has also resulted in the investor dividend being increased to €400 million.


Takeover deal

It is understood that the so-called dividend will actually replace a €400 million loan note that that Anchorage and Davidson Kempner received as payment for the Eir shares they disposed of as part of last year’s takeover deal. A spokesman declined to comment.

In effect, the manoeuvre has saddled Eir’s balance sheet with the cost of taking out the loan notes, which were previously a liability of a holding company controlled by Mr Xavier’s companies that was used last year to buy 100 per cent of the telecoms group.

The move prompted ratings firm Fitch to downgrade the expected rating on the new debt, comprising bonds and loans, by one level to BB-, which is three notches below what it considers to be investment grade.

Fitch said that the additional debt will result in “temporary leverage pressure” on Eir, though sources have said that the company is now generating more than €200 million of free cash a year, double what it was making at the time of the takeover.

“The new management have completed its staff reduction programme while also implementing significant process simplification and IT improvements, together with customer service and network investment,” Fitch said. “These changes over the next two to three years should further improve Eir’s financial performance, although some execution risks in achieving these ambitious plan remain.”

Unsustainable level

Eir’s examinership in 2012 was the result of the group racking up an unsustainable level of €4.1 billion of borrowings following a series of changes of control after the State floated the business on the stock market in 1999.

Under the rescue plan, some 40 per cent of debt mountain was written off, while its most senior lenders seized control of the business.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times