Eir Investors’ €300m salary brings back bad memories

Eir, who was forced to seek court protection from creditors in 2012 after years of being treated like a glorified ATM by a succession of landlords, will end up with one of the highest debt burdens among European phone groups as two US hedge fund investors plot a big payday.

It emerged on Tuesday that Eir planned to take on additional debt and dip into its cash to pay New York-based Anchorage Capital and Davidson Kempner, who together own 35.5% of Eir, a dividend of 300 million euros.

It would be the second cash return for the two companies in just over a year, after taking around 280 million euros off the table last March by selling a 20% stake while two French companies controlled by tycoon Xavier Niel bought 64.5 percent. cent of the company.

Anchorage and Davidson Kempner had mopped up most of their holdings on the cheap in the six years since Eir’s reviewer in 2012 – a massive restructuring in which 40% of its $4.1 billion debt euros were written off. The borrowings had been driven largely by a series of private equity and financial owners leveraging the business to fund hundreds of millions of euros in special dividends.

The latest move will involve Eir taking out a further €250m in additional loans and bringing the total to €2.5bn. Around 100 million euros will be reimbursed in the short term by the free cash generated by the company.

Yet that would leave Eir with a debt level of 4.1 times its earnings before interest, taxes, depreciation and amortization (ebitda). That’s at the high end of the range for European telecoms groups, and more than double the debt ratios of groups like BT Group, Swisscom and Telekom Austria.

Cash generation

Eir is believed to be confident that its improved cash generation since last March – as Niel oversaw a series of cost-cutting measures and simplification of its product offering – will quickly lower its leverage ratio to between 3.5 and 4 times. EBITDA.

However, it will remain well above the 2.3x ratio attached to Paris-listed Iliad of Niel, which owns 31.6% of Eir and has the option of raising that percentage to 59% in 2024 by buying out most of it. shares held by the Frenchman. NJJ investment vehicle.

NJJ executives said in December 2017 that the latest change in control – the seventh in less than two decades – was announced that NJJ and Iliad planned to bring Eir back “through dividends and not refinancing”. , as the company returned “to basics”. ”.

Niel’s NJJ and Iliad, in fairness, do not participate in exceptional dividend payments. But the problem is that Eir continues to have two financial investors owning more than a third of the company.

While analysts believe Eir is generally on track to reduce its debt burden over the next few years as earnings grow amid stabilizing revenues and the company has a more cost base low, there is a risk that hedge funds will push for new refinancings in the future to fund cash. dividends.