(JAMAICA OBSERVER) – The internationally acclaimed rating agency Fitch is expressing the view that Caribbean telecoms giant Digicel may be unable to repay debt due this year, even as it gets a 30-day grace period for interest payments on US$2.9 billion worth of debt.
Fitch reported yesterday that Digicel, which recently defaulted on its debt, “will struggle as a result of weak currencies and pressured accounts receivable collections”.
Expressing the view that, “this debt is not expected to be repaid”, Fitch points out that the default will stem from heightened uncertainty related to the novel coronavirus disease (COVID-19) pandemic.
According to the international ratings agency, “The COVID 19 pandemic as well as other factors will raise Digicel’s default risk for bonds due in 2020.”
DIGICEL RESPONDS TO FITCH
The Jamaica Observer contacted Antonia Graham, Digicel’s head of group communications, for a response to the Fitch assessment and she replied: “I understand Fitch yesterday issued what they termed a ‘non ratings report’ and that this appeared at the top of the report. Fitch has not issued a recent rating report on Digicel.”
She stated, “As you will appreciate, I cannot comment on ratings in respect of a ‘non ratings’ report. I can however share the following comment. Please note the word ‘permitted’ grace period and not default.”
The comment she referred read:” Digicel has publicly announced over recent days that arising from ongoing constructive and consensual discussions with some of its largest debtholders, certain Digicel subsidiaries are electing to take advantage of the 30-day grace period permitted under the relevant indentures. Digicel continues to engage in constructive discussions with certain debtholders regarding potential transactions involving exchanges of existing debt aimed at reducing Digicel’s leverage, extending its debt maturities and continuing monetisation of its well invested network”.
DIGICEL ACCEPTS 30-DAY INTEREST REPRIEVE
In the meantime, the Denis O’Brien-led Digicel, which has its head office based in Kingston, Jamaica has gotten a 30 day reprieve on interest on some US$2.9 billion of its debt.
In a statement Monday Digicel confirmed that it had elected to “take advantage” of the 30-day grace period permitted under agreements with debt holders and would defer making the interest payments on three tranches of its bonds. Interest was due on two of these bonds on March 30 with the third due today.
The move is seen as a response to the impact of Covid-19 on Digicel’s businesses and its desire to preserve liquidity. The company said this move arose from its “ongoing constructive and consensual discussions” with some of its largest debtholders on refinancing some of its debts.
In total, Digicel has debts of US$6.9 billion. The bonds impacted are the 8.250 per cent senior notes due in 2022 by Digicel Group One Limited, the 8.250 per cent senior notes due in 2022 by Digicel Group Two Limited, and the 9.125 per cent senior cash/payment-in-kind notes due in 2024.
DIGICEL IN TALKS WITH BONDHOLDERS
“Digicel continues to engage in constructive discussions with certain debtholders regarding potential transactions involving exchanges of existing debt aimed at reducing Digicel’s leverage, extending its debt maturities, and continuing monetisation of its well-invested network,” the company said.
Digicel, which operates in 32 markets in the Caribbean, Central America, and islands in the Pacific, remains in talks with bondholders about writing off a large part of what they are owed, as the company seeks to lower its US$6.8 billion (€6.2 billion) net debt pile.
Digicel reported on the weekend that it was in talks with certain bondholders about exchanging their notes for new securities from entities within the Digicel group.
“If the transactions are to be consummated, the value of the exchange consideration would reflect a discount on the current aggregate principal amount of the existing debt,” Digicel said.
The company has indicated that if it got enough support from bondholders, it might use a legal mechanism, or scheme, to impose it more widely. Fitch has previously said that the company would be likely to restructure US$3.8 billion of bonds, including US$1.3 billion of notes that mature in April 2021, which is the most pressing issue to be dealt with.
Digicel’s bonds have tumbled in value in the past 12 months amid mounting concerns about how sustainable the group’s debt mountain is following declines in earnings in recent years.
Its 2021 bonds have slumped from 71.5 cents on the dollar to 54.8 cents in the past week, reflecting a growing nervousness in the market that holders of the bonds will not get all of their money back.
“No assurances can be provided that an agreement will be reached,” Digicel said.
A spokesman for the company declined to comment on what categories of bonds it was looking to restructure.
While it had seen an improvement in its earnings in recent quarters, following years of decline, the view among financial analysts has long been that its debt level is unsustainably high.