Digicel amends exchange offer as 2020 noteholders organize with counsel - Update

12 September 2018
 

Editor's note: This updates Debtwire's earlier previous Digicel story from this afternoon. The update adds new reporting in paragraph 10 on the 2020 bondholder group orgnaizing with legal counsel.]
 
Digicel (Caa1/C) has amended its exchange offer for USD 3bn in bonds, removing a proposed USD 640m intercompany loan in an effort to give greater certainty and reassurance to holders tendering their notes, three sources familiar with the situation told Debtwire today.
 
The amendment will be beneficial to both the USD 2bn 8.25% senior unsecured bonds due 2020 and the USD 1bn 7.125% senior unsecured bonds due 2022, which are the target of the troubled Caribbean telecom’s exchange offer, the first source said.
 
The amendment, however, doesn’t change the subordination that the 2022s would have to the 2020s if the exchange goes through, the source added.
 
The exchange offer proposes extending the maturity of the 2020s to 2022 and of the 2022s to 2024, as reported. However, the proposal would also involve further subordination for the new 2024s in favor of the new 2022s, which would have a first claim on Digicel’s Pacific assets, while any remaining bonds of the existing 2020s and 2022s would be subordinated to the two tranches of the new notes.
 
As part of the reorganization, which would imply a transfer of the Pacific assets from the Digicel Group Limited (DGL) holdco level to the newly created entities issuing the bonds, the initial terms of the exchange offer stated that these new issuers would have a USD 640.1m intercompany loan owed to DGL.
 
Digicel has now removed the proposed intercompany loan from the terms of the exchange offer, according to the three sources.
 
The amendment was made two days ago, the second source noted.
 
The intercompany loan was the compensation for the asset transfer from DGL to the new entities that would issue the new bonds, and its elimination removes the risk for bondholders of DGL potentially stripping value off the new issuers in the future, the first source said.
 
Holders organization still evolving
 
A group of Digicel bondholders opposed to the exchange offer has gained traction in the last few days, with the proportion of holders that have reached out to Akin Gump, the group’s legal counsel, reaching 80% of the principal of each of the targeted 2020 and 2022 notes.
 
However, there is still room for negotiation as pieces in the bondholder organization are still moving, and the final picture of that group could still change, according to a fourth, fifth and sixth source familiar, who added that a separate group of 2020 bondholders is now splintering off with legal counsel Milbank Tweed, added the fourth source and a seventh source.
 
“Akin has been claiming 80%, but… folks [bondholders] are still trying to figure out which group they want to join, so they [the Akin Gump group] don’t have 80%, [but] still closer to 50% or under,” the fourth source said.
 
Digicel on 7 September extended the early tender deadline to 28 September, from 14 September, to match the final deadline. At the time, the borrower said that it had “entered into constructive discussions with an ad hoc group of noteholders.”
 
Parent DGL’s USD 2bn 8.25% senior unsecured bonds due September 2020 last traded 11 September at 72.5, to yield 26.489%, up slightly from 69.5 on 4 September, before Akin Gump hosted a bondholder call, according to MarketAxess. The USD 1bn 7.125% senior unsecured notes due 2022 last changed hands today at 59.75, to yield 24.837%, bouncing up from 53.75 on 4 September.
 
Operating subsidiary Digicel Limited’s USD 1.3bn 6% notes due 2021 last traded today at 90.13, yielding 10.449%, and the USD 925m 6.75% notes due 2023 last traded today at 82.813, yielding 12.146%. The 2021 and 2023 bonds, which have a claim on the Caribbean operations, are not targeted by the exchange offer.
 
A Digicel official declined comment, while messages left for Milbank officials were not returned.
 
by Pablo Dominguez, Reshmi Basu, and Paunie Samreth