Vultures close in on eircom

2Pack · July 27, 2007, 9:43am

Eircom debt is insureable.

The risk factor in insuring it is indexed on the Itraxx index called the Itraxx Levx . While the culprit that spooked the index seems to be Portugal Telecom it will make the cost of hedging against an eircom default much higher.

ftalphaville.ft.com/blog/2007/07 … celerates/

2Pack · August 3, 2007, 8:17pm

OK Potted History.

The 2 largest heavy leverage operations in Australia are Macquarie and Babcock and Brown. They borrow in murky ways to get the fund to take over their targets and they then leve lots of bonds lying around in mysterious hedge funds.

Babcock have a subsidiary called BCM which owns eircom . It has no other asset .

Today it fell 3% in an otherwise stable market as you can see

markets.smh.com.au/apps/qt/quote … Go&submit=

Macquarie was (this week) the big story in Australia when one of their hedge funds collapsed.

chart.bigcharts.com/custom/ft2-c … &freq=15mi

mwprices.ft.com/custom/ft2-com/h … ompany=NEW

The interesting thing is what happened to eircoms ultimate owners, Babcock and Brown , at the same time as Macquarie

chart.bigcharts.com/custom/ft2-c … &freq=15mi

Something murky will soon be revealed there I feel !!

2Pack · August 6, 2007, 10:33am

Itraxx series 7 crossover is worsening rapidly

eircom are a member as BCM Ireland ( see page 6 of this pdf)

markit.com/information/affil … ership.pdf

now look at bloomberg

bloomberg.com/apps/news?pid= … refer=home

LookingForYield · August 6, 2007, 12:42pm

Hmm. I don’t know what you could infer about Eircom in particular from the Xover s7 widening. I mean, the credit squeeze is occurring across the board - the Xover, the IG, the LevX indices are all wider. ABS, CMBS, RMBS all pricing wider in the primary and secondary market.

There is a broad based repricing of risk in progress.

Took a quick look at the XOver and BCMAU CDS spread history since start of june - correlation is 97.7%.

LFY

2Pack · August 6, 2007, 2:15pm

eircom are by far the most the most leveraged company in Ireland .

You are absolutely right about widening spreads everywhere LFY. It strikes me that the recent ‘share offer’ to the Irish government was eircom trying to get an implicit guarantee of solvency that would improve their credit ratings .

The problem right now is that the insurance cost ( thats what the itraxx actually measures) at â‚¬440k per â‚¬10m equivalent means that to hedge against an eircom default costs 4.4% when the bonds are paying LIBOR + 2 or 3 %…say 9%

The cost of insuring the same bonds was 1% as against 9% not so long back. The LIBOR has not moved much this year IIRC so maybe its 9.5% for accuracy.

All of this is independent of whether eircom are rerated downwards in future which would up their cost of servicing loans to maybe as much as LIBOR + 5% or even 7% …pure junk.

Currently they are ba3 on the bulk of their debt …mezzanine if I am right but not quite junk…yet .

The fact that the main eircom parent , BCM , fell 3% on friday and 3% again today on the australian stock market is also noteworthy.

It is underperforming the stock market over there. BCM owns nothing of note, bar eircom.

Of further note is that B and B and its sub funds are tracking Macquarie down in Australia of which

ftalphaville.ft.com/blog/2007/08 … rstand-it/

LookingForYield · August 6, 2007, 4:01pm

Well, the BCM reference bond for the Xover index is the E+500 note due in 08/2016. So that is paying Euribor + 500 and from looking at generic (as in - I can’t swear to them) prices on bloomie that is in or around par at the moment. So the cash is trading at +500 (ish) and the 10y CDS is at 540. So not a million miles away. Anyway, not sure why you are bringing in the cash market? CDS is a fine guage of credit quality.

Hmm. Eircom (or BCMAU anyway) are rated single B which is a good bit below investment grade - so they are already pure junk

Mezzanine? Mezzanine describes the position of the debt in the capital structure rather than talking about its credit rating. Ie, mezz ranks junior to senior debt but is itself senior to the equity. Of course, that affects the rating, as the more junior the debt then the greater the loss given default. Still, not sure exactly what you are getting at…

But just brings us back to the repricing of risk we mentioned earlier. Babcock & Brown (and Macquarie of course) buy assets using debt rather than equity so debt becoming more expensive increases their costs and, all else being equal, reduces their profitablity. Thus the share price reduction is caused by (and certainly can’t be considered independent of) the credit squeeze. Ie, the share price doesn’t add much extra info in this case.

I suppose what I’m getting at is that though Eircom might have difficulty refinancing their debt when it comes due in a few years (if conditions are the same as now) for the moment they have good cash flow and can pay off the interest. Unless they have to refinance soon (and they might well I’m no expert on Eircom) then the gyrations in the credit markets are not going to be a huge issue for them.

LFY

2Pack · August 6, 2007, 6:55pm

Thank you for your expert eye LTY and your explanation of mezzanine …not an absolute but a relative in a series of tranches…I had assumed it was an absolute tied to ratings.

The fact that the bonds do not need to be (re)financed ( they wont be paid off) for a few years puts them in the clear until then so…thats unless there are covenants we do not know about .

2Pack · August 15, 2007, 11:42am

eircoms parent down OVER 10% overnight on the Australian stock exchange .

asx.com.au/asx/research/Comp … p=NO#price

The parents own parent down 8.4%

asx.com.au/asx/research/Comp … p=NO#price

overall stock exchange down 2%

musings of B and B top dog Phil Green

abc.net.au/lateline/business … 999319.htm

ALI MOORE: Last Wednesday Babcock and Brown issued a statement saying your exposeure to the subprime mortgage market in the US is insignificant. Since then, your shares have lost more ground, why do you think investors are selling?

PHIL GREEN: Look, I’m sure some of our investors are leveraged and perhaps for their own reasons in terms of their risk management they’ve sold. In terms of our fundamental business we’re not an investment bank as such, we don’t deal in securities, we don’t warehouse debt, we basically invest in hard assets such as real state, energy assets, wind farms and, you know, we buy these, we develop them. They’re cash flow producing hard assets but obviously we’re seen by the market as an investment bank and I suppose tarred with the same brush.

ALI MOORE: Well, let’s look at the broader picture, what does the repricing of risk mean for your business model?

PHIL GREEN: In terms of, you know, our core business obviously we lock in our risk margins over the life of assets so for the most part, and particularly for our existing funds, it doesn’t mean anything in terms of their current distribution capability or even future distribution capability on their current portfolios.

In terms of future acquisitions obviously it has to be taken into account in pricing those acquisitions. From our point of view in the assets that we’re dealing in, while we do believe there will be some adjustment, we don’t believe over the medium term-that that’s going to be significant. We don’t see ourselves, notwithstanding the market may perceive it as being a significant beneficiary of the recent higher leverage and light covenant-type transaction.

ALI MOORE: You say you don’t think there’s going to be a significant impact in the medium-term but isn’t the biggest risk that the deals slow down, assets are more expensive, you have to hold them on your balance sheet for longer and you’re not recycling your capital as fast as you have been doing?

PHIL GREEN: If you actually focus on what has delivered our earnings growth, it hasn’t been an increase in the profit made from recycling assets that we’ve bought in the market place. Our growth in earnings has come from increase in assets under management and the development of assets where we build those assets ourselves and then deliver them into our funds, our funds and asset management platform. We believe we’re very well positioned for a correction in the market in our core business activity.

ALI MOORE: So, do you think though there will be a slowdown in deals inevitably because of what’s happening in the US and the repricing of risk?

PHIL GREEN: Look, I think there will definitely be a slow down in the public to private arena of large public takeovers. But do I think governments will stop doing PPP projects, do I think the energy sector and the demand for electricity globally will slow significantly? I don’t think anybody believes, at this point in time, that the impact of sub-prime mortgages is going to have a significant impact on global growth. Yes, the market will slow down a bit, but we believe that we’re well positioned for that.

ALI MOORE: You’re selling the message here that you’re well placed to deal with any issues and that you’re not directly affected but this is going to change the way things have been done, isn’t it? Cost of capital is going to go up?

PHIL GREEN: It will change the availability of leverage to, back to the market that existed and has existed for us for most of our corporate life. The reality is we have not been the beneficiaries, we don’t borrow at nine times EBITDA. We don’t have any assets that are leveraged to that sort of level. Even six and seven is a stretch for us. So the world, I think, has changed, but the reality is that Babcock and Brown doesn’t operate in that space, notwithstanding the market perception.

ALI MOORE: How much further do you think the fallout from the sub-prime market has to run?

PHIL GREEN: I think the sub-prime market itself, I don’t think is the issue in terms of fallout. I think the only issue is the extent to which the structured securitisation market is thrown into disarray for a lengthy period of time so that the method by which banks have distributed debt dries up and accordingly we go back to for a period of time, a market where the bank’s own balance sheets are the basis for lending, for the lending criteria and their ability to take that debt on balance sheet and subsequently syndicate it in a more traditional way. If that is the situation, then clearly the volume of transactions that has occurred over the last three years is unsustainable.

ALI MOORE: You’d call that a credit crunch? Are we going to get one if we haven’t already got one?

PHIL GREEN: Well I think if you’re at the end of the market that has been borrowing at nine times EBITDA to ten times EBITDA I think you’re in a credit crunch. Whether that extends to traditional lending I think that will be very short lived. I think the market is still highly liquid, particularly in Australia.

I don’t see any evidence, we haven’t seen, and that includes deals that we’ve done in the last two weeks where debt’s been syndicated, where quality asset back cash flows have been securitised, where we don’t see, even in the term over the last couple of weeks that there’s an inability to place credit.

The big issue comes in terms of how much some of the Wall Street firms and some of the big international banks have on their balance sheet and to what extent that means that they’re prevented from doing more business over the next six to 12 months. But I certainly don’t see it extending beyond 6 to 12 months and in any event I doubt whether it will impact basic straight forward leverage into ordinary operating businesses.

But the market disagreed with that Phil . Over 10% down, shhheeesssh

Who_ll_take_the_rap · August 15, 2007, 11:57am

2Pack wrote

This news should be good for the government in its current discussions with Eircom.

I guess that big Denis’ ears must also be pricking up at the pangs of B & B!

2Pack · August 16, 2007, 11:20am

Down another 5% today although the Aussie exchange was only down 1.5%

See this chart
asx.com.au

Tyrannosaurus · August 16, 2007, 11:22am

Any ideas on where this will all end Mr 2Pack?

2Pack · August 16, 2007, 11:39am

Hopefully in receivership so that the state can buy network/wholesale back cheaply and feck retail and the verminous staff who leveraged it with debt over the years to line their own pockets

A lean efficient eircom wholesale with no more than 3000 staff would be good for the country if in public hands

We can start our reducing line rental to the EU average straight away and roll out BB everywhere…if we can offload the â‚¬4.2bn debt as a day to day issue.

Gatelodge · August 19, 2007, 10:46am

Eircom deal delayed due to global crunch

Green_Bear · November 4, 2007, 8:47am

Eircom is preparing to restructure its €4 billion debt for the third time in two years, to make it easier for its new owners to extract fresh cash from the former state telecom company.
The refinancing will not take place until the new year at the earliest, however, as the company must wait for liquidity in the debt markets to improve in the wake of the recent global credit crunch.
Babcock & Brown Capital, the Australian investment firm that owns a 57 per cent stake in the company, is understood to favour a fresh refinancing as Eircom’s financial position has benefited from initiatives such as the €150 million sale of its network of phone masts and the sale and leaseback of buildings it no longer needs. >>>

**Eircom eyes fresh €4bn debt restructuring **
sbpost.ie/post/pages/p/story … qqqx=1.asp

Green_Bear · January 9, 2008, 6:33am

Telecoms regulator Comreg has said it is concerned at the high fault rate on Eircom’s telephone lines during the first half of 2007 after a survey revealed that the number of problems on its business lines doubled quarter-on-quarter.
Releasing data yesterday on Eircom’s performance during the first six months of 2007, Comreg also expressed concern over the high fault rate on the company’s residential lines.
Because of its dominance of the fixed-line telephone business in Ireland, Eircom is designated the Universal Service Operator by Comreg and is subject to frequent reviews by the regulatory body.
While the number of faults per 100 residential Eircom lines dropped to 6.2 from 7.5 between the first and second quarter of 2007, the number of actual faults on business lines in the period doubled to 6.2 from 3.1, effectively meaning over 6pc of Eircom’s business lines were the subject of a fault during the second quarter of the year. >>>>

Comreg concerned by Eircom’s high fault rate
independent.ie/business/iris … 61264.html

Green_Bear · February 14, 2008, 6:03am

Not surprisingly then, Comreg, the regulator which more than anyone else has the say so on this issue, is not to be rushed. John Doherty, the Comreg chairman, said: “Our focus in any review will be is this in the best interest of Irish consumers, is it in the best interest of competition, and is it likely to lead to further investment which over the last three years has not taken place.”

Mr Doherty believes our infrastructure is about two years behind other advanced countries. In numerical terms those Irish homes which can get a broadband service can get between one and six mbits/sec, with the norm being closer to the lower end of that scale. Japanese consumers can avail of up to 100mbits/sec while closer to home French businesses can sign up for 44.1mbits/sec. Known as ‘Next Generation Access’ (NGA) networks, are are still only a concept in the Irish market. One man particularly sceptical of the structural separation is Kevin Morgan, a former executive with Australia’s Communications Workers Union (CWU) who, having taken an academic interest in the subject, contacted our own CWU, the trade union which represents most Eircom employees, to express his misgivings.

The Irish CWU asked him to put those misgivings into written form and then leaked an executive summary to selected media, including the Irish Independent.

The CWU finds itself in an unusual position. On the one hand its Eircom members own the minority 35pc stake in Eircom through the ESOT (Employee Shareholder Ownership Trust), which has formally signed up to structural separation and has as much to gain financially as B&BC.

Ringing up a storm on phone lines
independent.ie/business/iris … 89260.html

Green_Bear · February 29, 2008, 6:25am

Eircom’s majority owner, Australian investment fund Babcock and Brown Capital (BCM), has said it will spend up to A$310m (€193m) to buy back up to 50pc of its issued share capital.
The company said this was in order to “reduce the discount to the underlying value of the company at which its shares are trading”.
The stock, which traded in Australia yesterday at A$4.10, has been estimated to be worth more than A$11 by some analysts.
Late last year, London-based hedge fund Pendvest, which was founded by Cavan financier Seamus Fitzpatrick, and which is now a minority affiliate of his Capvest venture, slammed BCM as an “inefficient investment vehicle” and said it wanted half the value of the Babcock fund to be returned to shareholders. Pendvest, which accumulated a more than 5pc stake in BCM, threatened to motion for company to be wound up if no progress was achieved. >>>>

BCM to buy back 50pc of shares
independent.ie/business/worl … 02283.html

Green_Bear · March 4, 2008, 6:18am

Rob Topfer, an executive at Eircom owner Babcock & Brown Capital (B&BC), has dismissed the Irish economy as a “pussycat”.
According to the Australian newspaper, ‘The Sydney Morning Herald’, Mr Topfer told shareholders in B&BC recently that while the Irish economy used to be the tiger of Europe, it was now a mere pussycat.
Mr Topfer is also reported to have said that he was “unhappy the Irish Government was not playing ball on separation”.
B&BC wants to split Eircom into a retail part and a network part and then sell off the retail division, leaving a network operator which would have access to funds at a lower rate than traditional telecos.
Neither the Government nor the regulator has endorsed these plans although Comreg, the communications regulator, has appointed consultants to advise on what form any separation might take. >>>>

B&BC boss claims tiger economy is a ‘pussycat’
independent.ie/business/iris … 04927.html

Green_Bear · March 17, 2008, 10:24am

Green_Bear · March 28, 2008, 11:08pm

What do a Spanish clothing retailer, an Irish telecommunications group, a German maker of plastic packaging film and a French house-builder have in common?
They are all so-called “zombie” companies, bought by private equity in heavily leveraged deals shortly before the debt bubble burst last summer and now judged by investors to be worth less than they owe to creditors.
“These are zombies, companies with unsustainable financial structures but no triggers for the banks to force them to renegotiate,” says Edward Eyerman, head of European leveraged finance at Fitch.
They include: Cortefiel, the Spanish clothing vendor acquired by PAI, Permira and CVC in 2005; Eircom, the Irish telecoms group bought by Babcock & Brown in 2006; and Klöckner Pentaplast, the German plastic film maker sold to Blackstone last year.
Cortefiel’s senior bank debt was recently quoted at 67 per cent of its par value, suggesting that the equity owned by the private equity firms is worthless.
Klöckner and Eircom also have debt trading at discounts of 15-30 per cent to par. >>>>>

‘Zombies’ haunt private equity companies
us.ft.com/ftgateway/superpage.ft … 1625385263