Debt-burdened Digicel Seeks to Borrow More

Irish-owned, Caribbean mobile phone group Digicel, is at an advanced stage of raising more than US$1 billion (€920 million) of debt to refinance borrowings that fall due over the next two years, the Irish Times recently reported.

The news, which the Irish newspaper attributed to credit rating agencies, follows Digicel’s announcement in February that it would reduce its global workforce by 25 per cent over 18 months as it attempts to cut its costs and boost its earnings.

Digicel currently employs in excess of 6,500 full-time employees, which means it plans to terminate 1,625 employees.

The newspaper reported that Digicel International Finance, which owns assets across the Caribbean, is raising US$935 million in senior secured loans that are due to be repaid within the next five to seven years. The telecommunications company is also said to be seeking to secure a US$100 million revolving credit facility.

The proceeds will mainly be used to redeem the company’s $856 million existing secured loan, which it must repay between March 2018 and March 2019, the Irish Times reported. According to the newspaper: “A deal would give Digicel, which operates in 31 markets in the Caribbean, Central America and South Pacific, significant financial headroom as it focuses on a massive restructuring programme. Digicel revealed in February it plans to cut more than 1,500 jobs, or a quarter of its workforce, over 18 months to improve earnings, which have fallen in each of the last seven quarters amid currency weakness in some of its main markets and heavy investment in its networks.”

The newspaper reported that Digicel’s US$6 billion-plus debt mountain stood at about six times earnings before interest, tax, depreciation and amortisation (ebitda) in December. It has committed to debt investors to lowering this ratio to 4.5 within the next two years.

“Refinancing of the existing credit facilities improves its financial flexibility as the group will not face any sizeable debt maturities until 2020, when its bonds start becoming due,” said the Irish Times quoted Fitch, the ratings agency, as saying in a note. While Digicel still has $80 million of debt maturing at its Digicel Pacific Ltd unit in August, Fitch expects it to be “comfortably” met with additional money being raised in the new debt issuance, according to the Times.

The newspaper quoted another ratings agency Moody’s as saying: “Moody’s said Digicel’s creditworthiness, which rated non-investment grade or ‘junk,’ is constrained by the group’s high debt levels and ‘aggressive financial policy, which includes frequent debt-funded acquisitions and opportunistic dividend payments’.”

Moody’s said it could upgrade Digicel’s rating “if the company showed continued restraint with respect to dividends” and if it demonstrated that it was on track to lower its debt to four times ebitda.

“O’Brien, who set up Digicel in 2001, received $1.1 billion in dividends from the group in the three years to the middle of 2015. This includes special dividends and a quarterly $10 million payment. He stopped taking the regular $10 million dividend in late 2016 and committed to debt investors in Digicel that he would not take any more payments until the company’s finances improved,” The Irish Times reported.

Courtesy: Trinidad Guardian •