Potential buyers of Eircom are facing significant additional debt burdens as some of the company's bonds include change of control provisions forcing buyers to buy the debt out at either full face value or more.
Debt-heavy Eircom is reported to have several suitors, including telecoms entrepreneur Sean Melly and Singapore fund Technologies Telemedia. However the only group who have publicly declared their hand are Taemas Bridge, an Australian group led by former Babcock & Brown executive, Rob Topfer.
The big problem facing any buyer is the sheer scale of Eircom's almost €4bn of debts, issued by a company called BCM Ireland. Buyers will be able to acquire the company for a reasonable price in the current depressed environment for telecoms assets, but re-structuring the debts could prove difficult. Some of the bonds are trading well below their par value, with one bond last week trading at around 14 cent in the euro.
However the difficulty with some of the bonds is they have to be bought at either face value or 101% of face value, thereby making it difficult to buy out the debt at some level of discount. It is understood Melly is trying to find ways to restructure the Eircom debt with help from JP Morgan.
Despite its high debt levels, Eircom continues to have between 60% and 80% market share of its main markets. Many debt analysts still recommend purchasers to buy BCM bonds, even though credit insurance on the securities has risen hugely in recent months.