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Digicel bond yield falls as debt deal begins to emerge

The yield on a key Digicel bond dived towards a new low following the announcement that founder Denis O’Brien had agreed to reduce his majority control of the telecoms.

Digicel Group has gone through several debt restructurings in recent times, but the current deal to eliminate US$1.8 billion of its obligations and carve US$110 million annually off its debt servicing costs is the first known to include an agreement that O’Brien, an Irish billionaire, would give up a portion of the company.

The yield on the DLLTD8.75 bond dropped 26 per cent on Wednesday, March 1, to 17.5 per cent – lows not seen since last October, according to bond charts on US platform Zackstrade and corroborated by Cbonds. A day prior the bond hovered near highs of 23.7 per cent.

On Thursday, the slide continued and was down to 17 per cent.

Bond prices and yields have an inverse relationship. When a bond price falls, the yield automatically rises, and vice versa.

The DLLTD8.75 bond represents US$600 million of around US$4.4 billion of Digicel’s total outstanding debt. Many of the other bonds issued by the telecoms were either not traded or were unavailable for viewing.

Local bond traders avoided comment on the development with Digicel, in part due to many local firms exiting their positions years earlier when trouble surfaced at the highly leveraged telecoms.

On Wednesday, Digicel announced that a group of unnamed bondholders, which collectively own 50 per cent of the outstanding bonds, are working towards taking majority hold of Digicel.

The bondholders were identified only as an “ad hoc group of crossover holders” or AHG.

Under the plan, O’Brien would remain a director and shareholder of the recapitalised business, Digicel said in a statement. The proposed transaction would ensure business continuity and uninterrupted service to customers, the company said.

“The proposed transaction would, if and when consummated, reduce the group’s consolidated debt by approximately US$1.8 billion and reduce its annual cash interest by approximately US$110 million, while ensuring sufficient cash to fund operations and invest in key growth areas,” Digicel said.

Last month, Fitch indicated that Digicel had US$925 million in bonds maturing in March, with “minimal cash” of US$90 million at the subsidiary holding the debt to cover the amount. Additionally, the telecoms has another US$2.2 billion in debt maturing in May 2024, with its subsidiary holding US$315 million cash at December 2022. Fitch downgraded the company and subsidiaries to a low CC rating, indicating that a debt restructuring was imminent.

O’Brien, 64, founded the telecoms in 2001 in Jamaica after selling his previous telecoms Esat for a reported EUR200 million.

O’Brien tapped youthful CEO Seamus Lynch and chief marketer Harry Smith to lead Digicel at start-up, which entered the market offering per-second and prepaid billing. It quickly resulted in the company surpassing Cable & Wireless Jamaica, now trading as Flow Jamaica, as the largest cellphone provider in its initial year of operation.

Digicel then rapidly expanded across the region and now operates in some 25 territories. Over that period, it, however, relied heavily on debt raised through a series of corporate bonds to build out its operations.

In Jamaica, which serves as Digicel Group’s operational headquarters, the company continues to dominate the market, notwithstanding its years-long troubles with debt.

As to the pending change in the ownership structure and its likely impact, neither the Office of Utilities Regulation, Technology Minister Daryl Vaz, nor Opposition spokesman on technology Hugh Graham responded to requests for comment.

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