Paul Donovan: 'very confident'

EIRCOM chief executive Paul Donovan says the company hasn't been "blasé" in acting to prevent a breach of banking covenants on its €3.1bn debt mountain.

The slide in the company's earnings before interest, tax and depreciation (EBITDA) declined in the year to the end of June 2009, meaning a breach of its debt-to-EBITDA covenant in the next 18 months is likely unless the debts are renegotiated or Eircom gets a cash boost from its owner, Singapore firm STT.

"I don't think we've ever been blasé about it. I have said the issue of our balance sheet remediation is under active consideration by the board. We are dealing with the issue," Donovan told the Sunday Tribune after a further downgrade of some of Eircom's debt by ratings agency Moody's.

Moody's forecast that Eircom would breach the covenants next June. It also had concerns that STT was not showing any commitment to solving the problem and questioned Eircom's strategy. Moody's was the first ratings agency to raise concern about the company's debt burden in January.

"We are very confident [a covenant breach] will be avoided and there are very clear options open to us," Donovan said.

Donovan said the options included an equity injection by its main investors or asking its lenders to loosen the covenants. He couldn't rule out a debt-for-equity swap.

The debt mountain was built up by Eircom's various owners until STT bought a 65% stake in the company last year. Eircom has appointed restructuring experts Gleacher Shacklock and investment bank JP Morgan to advise it on talks with bond-holders.

Donovan also rejected Moody's criticism of STT's intentions, saying it is committed to Eircom for the long term and on its strategy.

"We have been clear that it comes from two areas: our ability to upgrade our customer experience in the area of broadband" and the launch of new mobile phone services, he said.

Donovan also said more costs would have to be taken out of the company in the current year, with job losses and changes to work practices likely.

Eircom last week said revenue in the year to the end of June dropped 8.5% to €1.8bn and EBITDA fell by 2.3%. Earnings from its mobile arm Meteor slumped 13% to €108m. Donovan said the fall was due to distribution problems following the collapse of its handset supplier. He also said Meteor suffered by not being able to sell Apple's iPhone.