There seems to be reasonably positive news for Digicel, an operator present in about 25 markets across the Caribbean and Central America, but less positive news for its founder and Chairman Denis O’Brien, as creditors move to seize control of the business in return for its writing off $1.8 billion of its borrowings.
The Irish Times newspaper estimates that O’Brien may end up losing as much as 90 per cent of Digicel Telecoms to bond creditors. At the moment he is estimated to own 99.9 per cent of the group he founded in 2001.
That said, he may receive shares as an incentive to remain involved in the business and maintain key relationships across the markets in which Digicel operates.
That, at least, is the view of many business pages after the announcement earlier this week that Digicel had reached agreement in principle with investors in about half of its $4.55 billion of bonds and corporate loans on a proposal to cut its debt pile in exchange for creditors taking a stake in the group.
It’s hard to see another way out for Digicel, not least because recapitalising the business would reduce debt (which is still significant) and give it equity value. Digicel has already been through two major debt restructurings in recent years.
Digicel entered fresh restructuring talks last year with bondholders who were due to have $925 million repaid on Wednesday. As we reported at the time, O’Brien had asked for an initial 30-day grace period and the signs were good that he would get it.
However, just over a week ago, Fitch, a leading credit ratings agency, downgraded Digicel’s Long-Term Issuer Default Rating, noting that the downgrade “reflects its very high credit risk due to limited liquidity to pay off its $925 million unsecured notes maturing in March 2023”. It seems likely Digicel’s creditors agreed with this assessment.