Bloomberg News

Eircom IPO Talk on Coat-Tails of Ireland’s Recovery: Euro Credit

April 29, 2014

Eircom telephone booth

A pedestrian speaks on a mobile phone as he passes an advert for Specsavers on the door of a fixed-line public telephone booth operated by Eircom Group in Dublin. Photographer: Aidan Crawley/Bloomberg

Eircom Group has a checkered past with six ownership changes in 15 years, two short-lived stock market forays and Ireland’s biggest bankruptcy. Now the phone company is counting on investors forgiving and forgetting.

The former state-owned operator, which cost bondholders 1.8 billion euros ($2.5 billion) when it restructured in June 2012, hired Rothschild, Goldman Sachs Group Inc. and Morgan Stanley (MS:US) as it considers a public stock offering after issuing some of Europe’s best-performing high-yield notes. Its 9.25 percent bonds climbed to a record 111.2 cents on the euro this month.

“The history of Eircom has been one of buyer’s regret,” said Brian Lucey, a finance professor at Trinity College Dublin and former Central Bank of Ireland economist. “Markets are hot for IPOs and Eircom is an easy sell linked to the Irish recovery. Whether the company and the product is any good is a second order of importance.”

Eircom is riding the coat-tails of confidence in the Irish economy, which is forecast to grow 2.1 percent this year compared with a 0.3 percent contraction in 2013. The nation regained investment-grade status after becoming the first euro-area member to exit an international bailout plan, while the country’s “bad bank,” set up to absorb 74 billion euros of toxic real-estate loans, this year made its first interest payment on its riskiest securities.

Blackstone Shareholder

The company’s biggest shareholder is Blackstone Group LP, which owned about 25 percent in September, according to bondholder filings. Alcentra Ltd., the money manager owned by Bank of New York Mellon Corp., also has a stake along with Silver Point Capital LP and Anchorage Capital Group.

Eircom entered examinership, an Irish form of Chapter 11 creditor protection, in March 2012 with 4.1 billion euros of gross debt after unemployment tripled with Ireland’s economic collapse causing customers to lower spending. The company, which said this month it has about 2.35 billion euros of debt, is cutting more than a third of staff as part of plans to save 100 million euros annually.

“The first-lien lenders who became shareholders stand to make a healthy profit from the IPO,” said Frederik Foged Dreyer-Neilsen, chief executive officer at LEF A/S in Copenhagen, which lends to businesses. “The examinership helped transfer wealth from one creditor group to another.”

Eircom was upgraded one level by Moody’s Investors Service to B3 in February, six steps below investment grade. The Dublin-based company faces a competitive telecommunications market and needs to invest in order to build a broadband network that will cover 70 percent of Ireland by 2016.

Strengthening Finances

“The board is exploring a number of options with a view to further strengthening the financial position of the group, one of which includes a possible listing on a public market,” said Chris Kelly, a spokeswoman for Eircom in Dublin.

The company extended the maturity of most of its 2 billion euros of loans by two years to 2019 last month, while its 350 million euros of seven-year notes handed investors 22.5 percent in the past year, making them the seventh-best performing junk bonds in Europe, according to data compiled by Bloomberg. This year they’ve returned 7.2 percent.

“This may be a quite unique situation,” said Brian Kennedy, a money manager at Boston-based Loomis Sayles & Co., which holds Eircom bonds among $210 billion of assets. “Is it normal to see a company come out of bankruptcy and move up this quickly?”

Float Timing

Eircom hasn’t decided on the timing of the offer or how much of the business to float, Chief Financial Officer Richard Moat told Bloomberg News on April 11.

The company’s earnings before interest, taxes, depreciation and amortization fell 1 percent in the six months through December to 233 million euros, it said in a February report. Net debt last year was 4.5 times earnings.

Moody’s cited improved operating conditions, investments in 4G and fiber networks along with cost cutting when the ratings firm issued its upgrade. It warned growing revenue may prove “elusive” and calculated a ratio of net debt to earnings of between six times and 6.5 times by June.

“The step that would transform the company would be if they do an IPO and use the proceeds to reduce debt,” said Ivan Palacios, an analyst at Moody’s in Madrid said. “The company is in a transition stage. We expect Ebitda will stabilize in the near term and rise in the medium term.”

Telecoms Acquisitions

The telecommunications industry is a favorite for mergers and acquisitions this year. Vodafone Group Plc, the world’s second-largest mobile carrier is buying Grupo Corporativo Ono SA, Spain’s biggest cable company, for 7.2 billion euros, while Paris-based Billionaire Patrick Drahi last week issued a record $23 billion of high-yield debt to fund his purchase of French phone company SFR.

With the economy recovering, more than 300 share sales have priced in Europe this year, up 19 percent from the same period a year earlier, according to data compiled by Bloomberg.

“The equity markets are pretty hot right now and the company’s potential return to growth would be a hook for equity investors,” said Aengus McMahon, a London-based credit analyst at ING Bank NV. “A business like this doesn’t want to be owned by its creditors and the best way out of that is to return to the equity market.”

To contact the reporter on this story: Katie Linsell in Madrid at klinsell@bloomberg.net

To contact the editors responsible for this story: Shelley Smith at ssmith118@bloomberg.net Michael Shanahan


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