Telecommunications provider Digicel has filed for Chapter 15 recognition in a federal bankruptcy court in the Southern District of New York after it was granted an application for provisional liquidation in Bermuda.
The filing by Digicel Group One Limited, a Bermudian non-operating intermediate holding company within Digicel Group, is part of a debt restructuring.
Digicel said the decision to liquidate one of its affiliates will have no effect on day-to-day operations.
The group had a total outstanding debt of $7.4 billion at the end of the third quarter of 2019. About $1 billion in debt is due to mature next year and about $4 billion by 2024.
For the financial year ending March 2019, Digicel’s annual turnover was reported as $2.3 billion with an operating profit of $479 million, according to the financial statements submitted to the court.
Recently, Digicel’s debt-financing costs have increased significantly as the group faced declining revenues in key markets, such as Haiti, Jamaica and the French West Indies.
Like other telecommunications providers, Digicel has seen a reduction in voice call revenues as a result of new data services. But revenue growth from these data and other services, like business solution, broadband and cable, has not been enough to offset the decline.
The expansion of these services also required significant capital expenditures, which reduced Digicel’s ability to generate operating free cash flow and lower its finance costs.
“As a result, the Group finds itself with unsustainable levels of indebtedness,” the court filing stated.
In the six months ending at the end of September 2019, the group’s finance costs increased by $51.4 million, or 19.7%, to $312.9 million, compared to the same period a year earlier.
“In the face of near-term maturities, increasing finance costs and widening losses, the Group determined that there was a need for a comprehensive restructuring of its capital structure that would reduce aggregate liabilities, improve its liquidity profile and provide flexibility for the Group to access further capital in the future to fund its businesses,” the court filing said.
Earlier this year, Digicel entered into discussions with a group of holders of various bonds with a principal amount of about $1.51 billion to manage the maturity and interest expense of the debt and better manage cashflow.
This resulted in a Lockup and Support Agreement under which the debt holders tender their existing notes in exchange for new debt with longer maturities and different payment terms.
In a press statement, Digicel said the refinancing would reduce the company’s debt by $1.7 billion, extend debt maturities and lower ongoing financing costs.
“Following overwhelming support from our debtholders for these proposals, we are now progressing with the required administrative processes,” Digicel said.
This included a scheme of arrangement submitted to the Bermudian courts as well as the appointment of “light touch” provisional liquidators to oversee the scheme.
The US court filing, published by Offshore Alert, stated the recognition of the scheme as a foreign main proceeding under chapter 15 of the US Bankruptcy Code is necessary to ensure that scheme creditors are treated consistently, that the Bermuda Court’s sanction of the scheme is enforceable in the US, and that the company and its property are protected from seizure or lawsuits in the US.
In its press statement, Digicel said, “It’s important to point out that this will have no impact on our day to day operations, our staff, our suppliers, our customers or any aspect of our ongoing activities – it is business as usual.”