Businessman Sheldon Stephen is assuring telecommunications giant Digicel that they will be paid all outstanding monies owed to them.
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Digicel to borrow US$865m in bond sale
In its second highest bond sale, Digicel is returning to market to borrow US$865 million in senior notes, a statement from the company’s Jamaica head office said yesterday. In immediate reaction, both Fitch Ratings and Moody’s, two of the world’s top three credit rating agencies, rated the bonds below non-investment grade or “junk.” Fitch justified the rating by saying that the bond issue is to repurchase and pay for a previous bond issue.
Digicel posted a net loss of US$198.4 million in its 2013 fiscal year, down from a profitable position of US$47.2 million in fiscal year 2012. A statement from Digicel Group Ltd yesterday said it planned to use the net proceeds from the offering to repurchase any and all of its 10.50 per cent senior notes due 2018, pay any related fees and expenses, and redeem the senior notes, if any, that remain outstanding after the completion of the tender offer.
The company said it would use any remaining net proceeds for general corporate purposes, including capital expenditures, investments, acquisitions or debt repayment. The brief statement added: “The notes have not been and will not be registered under the US Securities Act of 1933, as amended, and may not be offered or sold in the US, absent registration or an applicable exemption from registration requirements.”
Holders of the previous bond have a deadline to take up the offer from Digicel to sell back the bonds to the company. “The tender offer is scheduled to expire at 11.59 pm, New York City time, on April 15, 2014, unless extended or earlier terminated by the company,” Digicel said.
Digicel did not say why it is buying back its own bonds via another bond issue but had said earlier that it will “use any remaining net proceeds for general corporate purposes, which could include capital expenditures, investments, acquisitions or debt repayment”.
The company has retained Citigroup Global Markets Inc to serve as the dealer manager and solicitation agent for the tender offer and consent solicitation.
Digicel has a number of bonds on the market. On Digicel’s US$1.5 billion unsecured notes due 2020, Fitch Ratings has a B– rating, the same as on the US$775 million unsecured notes issue due to mature in 2018. Fitch also has B rating on Digicel’s US$1.3 billion unsecured notes due 2021, US$800 million unsecured notes due 2017 and US$250 million unsecured notes due 2020. According to the Fitch documents, Digicel, through its various subsidiaries and parent company, already had issued US$4.625 billion in bonds.
Fitch rated Digicel’s latest bond at B-, which is six notches below investment grade. In a statement, the ratings agency said: “Proceeds from the issuance are expected to be used to fully redeem its US$775 million 10.5 per cent senior notes due 2018 and to pay for a tender premium for such redemption, as well as the associated accrued interest.
“The ‘B-/RR5(EXP)’ rating for the proposed notes, a notch lower than the company’s Issuer Default Rating (IDR) of ‘B’, reflects the proposed notes’ structural subordination to liabilities of DGL’s subsidiaries, none of which will guarantee the notes, as well as its below-average recovery prospects in the event of default. Securities rated “RR5” have characteristics consistent with securities historically recovering 11 per cent to 30 per cent of the principal and related interest.”
Fitch also said: “DGL has generated stable operating results in the first nine months of fiscal year 2014, ending on March 31, 2014, and Fitch expects this trend to continue over the medium term. The company’s constant-currency-based revenue posted modest growth of three per cent with its earnings before income tax, depreciation and amortisation margin improving to 45 per cent from 44 per cent during the past year.
This was mainly driven by increasing data revenue supporting average revenue per user, a decline in churn rates, as well as strong growth in Papua New Guinea and T&T.”