DUBLIN Ireland's former state telecom operator eircom applied for court protection as expected on Thursday to allow it restructure its 3.75 billion euro ($5 billion) debt mountain, a move it said was "necessary and unavoidable".
The application follows the company's agreement to support a proposal under which most senior lenders take control of the company from current majority shareholder Singapore Technologies Telemedia (STT) and cut its debt pile by 40 to 50 percent.
A representative of the company told the High Court eircom was applying for examinership, a process that protects company assets from creditors for up to 100 days while a survival plan is worked on to keep the business afloat.
The examinership - akin to the Chapter 11 bankruptcy process in the United States and administration in Britain - would be the largest in Irish corporate history. The court will decide on Friday whether to approve the application.
"This is a necessary and unavoidable step on our journey to addressing the unsustainable level of debt on our balance sheet and continuing our operational transformation into a vibrant and competitive company," outgoing eircom Chief Executive Paul Donovan said in a statement.
Lenders believe that the process will move more quickly as eircom is supporting the restructuring.
Laden with debt and suffering from serious under-investment since its privatization in 1999, eircom's fate highlights the risks of privatization and casts a shadow over government plans for new state asset sales.
Dublin is currently planning to sell state assets worth 3 billion euros to meet a target imposed by its International Monetary Fund and European Union creditors. The largest asset on offer is the energy business of gas utility Bord Gais.
Its last major foray into privatization saw shares of eircom collapse after an IPO marketed as a one-way bet to the Irish public. It built up the debt during a series of changes of ownership.
Singapore sovereign wealth fund Temasek unit STT bought 65 percent of eircom in 2009 for 140 million euros in cash and shares. An employee share trust owns the other 35 percent.
Eircom has 4.1 billion euros of gross debt and more than 300 million euros of cash on its balance sheet, giving net debt of around 3.75 billion euros.
The proposal from lenders will write off 1.8 billion euros from the gross debt in a restructuring that would leave the company with around 2.3 billion euros of gross debt, sources close to the negotiations have said. [ID:nRLP89987a] The proposal will wipe out nearly all of the company's junior debt and senior lenders will take a 15 percent haircut in return for control of the company, the court was told. Trade creditors will be unaffected by the restructuring plan and will not bear any losses, unlike lenders, bankers have said.
A senior lawyer for eircom said that the support of lenders even though one category of them was being wiped out and another virtually wiped out was a very significant vote of confidence for the company's business plan.
"Even the second lien lenders who are facing 90 percent write down are nonetheless not just content but anxious to see that all debts be paid in the ordinary way and that this company continues in business as usual and emerges from it as quickly as possible," Michael Collins told the court.
(Additional reporting by Tessa Walsh; Writing by Conor Humphries; Editing by Dan Lalor and Jane Merriman)