Digicel's US$1.7-b debt restructuring deal amounts to default, says Moody's


Digicel's US$1.7-b debt restructuring deal amounts to default, says Moody's

But Digicel says the move transforms company's balance sheet

Observer business writer

Sunday, May 10, 2020

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Moody's, one of the world's leading credit ratings agencies, is describing Digicel's plan to wipe away as much as one quarter of its US$7-billion (€6.5bn) debt through restructuring as defaulting.

The Jamaica-based regional telecoms group, owned by Irish businessman Denis O'Brien, announced last month that it was asking holders of five classes of bonds to wipe away a total of US$1.7 billion of what they were owed by swapping their securities for notes of lesser value.

Digicel, which had been left with a high debt burden following years of declining earnings, said last week that most of the bondholders had signed up for the offer.

However, in a statement issued on Tuesday in New York, Moody's argued that the debt exchange plan – which is still ongoing – if completed as proposed, “we will consider them as a distressed exchange, which is a default under Moody's definition”.

In response, Digicel told the Jamaica Observer, “This exchange process arose from a consensual, collaborative process with bondholders that has secured overwhelming bondholder support to reduce Digicel debt by almost one quarter (US$1.7 billion), extend debt maturities, and reducing ongoing financing costs annually.

“It transforms Digicel's balance sheet and its scope to continue monetising its well-invested network following four successive quarters of underlying mobile revenue growth.

Moody's has rated Digicel's creditworthiness as Caa2, and reflects what it describes as the group's “untenable capital structure and tight liquidity position” ahead of the debt restructuring being completed.

In coming to its assessment of Digicel's debt restructuring plan, Moody's reported that it “also considers Digicel's presence in emerging markets with a history of instability and exposure to adverse weather events, as well as its exposure to the risk of currency depreciation against the US dollar, especially in its three largest markets [Jamaica, Haiti and Papua New Guinea]”.

Moody's added that at the same time, Digicel's rating takes account of its product and geographic diversification, strong margins and market-leading positions.

In concluding, Moody's assessed that a completion of the debt overhaul plan would reduce Digicel's debt burden to about six times its earnings before interest, tax, depreciation and amortisation (Ebitda) from the current 7.7 times.

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