Eircom signals it may breach covenants

EIRCOM HAS said it is “likely” to breach its financial covenants with lenders within the next three months as its revenues and earnings continue to come under pressure in the recession.

Eircom’s revenues declined by 11 per cent in the three months to the end of March – the third quarter of this financial year – to €407 million. Revenues fell by 7 per cent for the nine months period to the end of March to €1.28 billion.

The company yesterday launched new “incentivised exit” schemes to reduce its headcount.

Chief executive Paul Donovan told The Irish Times that he expects about 1,000 staff to leave the business over the next 12 to 15 months through these schemes and natural wastage. Eircom currently employs about 6,000 staff. About 680 workers have left the company in the past year.

Eircom was in compliance with its convenants for the three months to the end of March, but it has signalled strongly that it is unlikely to meet its next test in August, when its compliance statement for the three months to the end of June is completed.

Mr Donovan said the appointment of a committee to represent first lien senior creditors was close to being formalised and Eircom would shortly begin talks on restructuring its debt with them.

He said the company’s new business plan was also “nearly complete” and discussions are taking place with its shareholders – Singapore-based STT and the employee Esot – about a possible equity cure, which could relieve the pressure on its covenants. “We are progressing in a really structured way,” he said.

Mr Donovan added that he was “keen” to conclude its various discussions before the “break for summer”.

Senior creditors are being represented by advisory firm Houlihan Lokey, while Eircom has engaged investment banks Gleacher Shacklock and JP Morgan and law firm Linklaters to represent it in talks.

Eircom’s net debt stood at €3.1 billion at the end of March. This was €205 million below the level of March 2010. Its net cash rose to €368 million at the end of March from €265 million a year earlier.

Eircom’s latest results highlight the difficult external environment in which it is operating.

For the nine months to the end of March, its earnings before interest, tax, depreciation and amortisation fell by 3 per cent to €482 million.

Fixed-line revenues fell by 6 per cent while its mobile sales were 11 per cent lower.

The company shed 21,000 mobile customers in the nine months to end the period with 1.04 million subscribers.

On a brighter note, its post-paid mobile customer base rose by 23 per cent to 190,000.

Mr Donovan said eMobile, the mobile subsidiary launched last year, made a “significant contribution” to the rise in bill pay customers.

Eircom yesterday announced that Meteor and eMobile would both start retailing the iPhone 4 device in the coming weeks.

The average revenue per user in mobile was down 11 per cent to €30.95 for the nine months to the end of March.