Digicel has sought more time to come to an accommodation with bondholders that will see it address its US$4.55 billion debt pile and get it on a more sound operational footing.
What is clear is that many holders of Digicel notes will have to make do with extreme haircuts and will have to stew in their vexation.
It looks likely now that founder and Chairman of Digicel Group, Denis O’Brien will have to settle for holding just 20 per cent of the telecoms player.
The goal here is to reduce Digicel’s debt by US$1.8 billion in exchange for equity. The negotiations have been protracted but it is vital that the right solution is found in order that Digicel can remain viable.
Overhauling Digicel will be a big undertaking unlikely to be resolved in just a few weeks hence the continuous extensions.
Bondholders of Digicel’s holding company will have to make do with just US$180 million with some having to settle with less than 10 cents on the dollar- a bitter pill to swallow.
Those who hold lower ranked Digicel bonds will suffer even more pain.
The way out seems likely to be via a Bermuda scheme of arrangement and US Chapter 15 bankruptcy manoeuvre which was employed back in 2020. This left its shareholders intact and served as an alternative to Chapter 11 bankruptcy.
Most of the debt is with Digicel’s operating companies and an extension until mid June has been granted. For slashing the debt, the bondholders want equity and control of Denis O’Brien’s company.
While all this drama is going on and Digicel fights to keep its head above the waves, renown international rating agency Fitch has downgraded Digicel Group Holdings Limited (DGHL) and Digicel Limited (DL) from C to Restricted Default (RD).
Fitch writes: “ The downgrades of DL and DGHL reflect the expiration of the original grace periods to pay principal and interest on DL’s 2023 notes and on interest on DGHL’s 2025 notes. Fitch’s revisions of its definition for Restricted Default removed ambiguity regarding multiple extensions of applicable grace periods.”
It also clarified that the relevant event in determining a “RD” rating is the uncured expiry of any applicable original grace period.
Fitch continues to plunge the knife into Digicel, calling it out for systemic weaknesses such as its corporate governance and the many times it has had to restructure its debt.
“The ratings of the DGHL subordinated notes reflect poor recovery prospects. Digicel’s decision to restructure debt multiple times remain a constraint on the rating and Fitch views its corporate governance as weak.
“Digicel’s incorporation status in dozens of countries and extensive use of contractual features of debt results in a complex group structure that weakens its corporate governance and the Group’s consolidated credit profile.
The recovery analysis assumes that DGHL would be recognised as a going concern in bankruptcy rather than liquidated,” declared Fitch.
Denis O’Brien will need all his business acumen, good fortune and the luck of the Irish to pull his company out of the abyss. It’s hard to imagine a bunch of bondholders steering the Digicel ship and seeing to it that it doesn’t run aground..
O’Brien had a good ride. Going forward, the company he built will be transformed becoming less reliant upon debt.
It will become a less gun-ho entity.