Ireland was in the news for all the wrong reasons again last month. The bail-in of subordinated bondholders in Allied Irish Banks and Bank of Ireland is being forced through, despite several legal challenges from disgruntled hedge funds, and talk has now returned to the prospect of senior bondholders joining them and being bailed in as well. And just in case investor sentiment was not negative enough there is the prospect of national telecoms operator Eircom defaulting on its debts.
The company has struggled for some time and has a debt pile approaching €4 billion. It is difficult to see where it goes from here. Eircom was poised to breach covenants on its €3.3 billion senior debt by the end of June although some close to the situation believe this might happen in the third quarter instead (but no later). The firm owes €1.2 billion by 2014 and a further €1.2 billion in 2015. It has €360 million in cash and made revenues of €1.82 billion for the year to June 2010 but revenues were down 11% for the year to March.
Its huge debt burden is a legacy of the pre-crisis leveraged buyout boom, when now defunct Babcock & Brown Capital bought the telecoms firm in a 2006 deal overwhelmingly financed in the debt markets through Barclays Capital, Credit Suisse, Dresdner and JPMorgan.