Bondholders gird for Teleglobe battle (gam)
Bertrand Marotte
MONTREAL -- Some Teleglobe Inc. bondholders are preparing for a battle with parent BCE Inc. over the possible restructuring of its financially troubled subsidiary.
Meanwhile, another agency lowered its credit rating on Teleglobe's debt yesterday.
Standard & Poor's Corp. of New York cut its rating to single-B-minus from triple-B-plus because of mounting concerns about Teleglobe's ability to obtain further funding from BCE.
The move follows a downgrade of Teleglobe debt by Moody's Investors Service Inc. on Thursday, on top of a downgrade to junk status a week ago.
Evan Flaschen, who heads the restructuring practice at Boston-based law firm Bingham Dana, said in an interview yesterday he has received "a flurry of calls [Thursday and yesterday]" from U.S. holders of Teleglobe bonds asking if he can represent them.
"I'm trying to figure out what's going on. I'll know better next week," he said.
Mr. Flaschen already represents a group of AT&T Canada bondholders, whose debt has been trading at a fraction of its original value. Teleglobe's bonds have recently been trading at the 20 cents (U.S.) level.
BCE spokesman Nick Kaminaris said the company is not aware of any moves afoot by bondholders.
"We haven't heard anything about this at the moment," he said.
Teleglobe owes a total of about $2.5-billion, of which a bank credit line of about $1.25-billion comes due in July.
BCE said earlier in the week it's reviewing all of its options for Teleglobe and expects to announce a decision in about two weeks.
Mr. Flaschen said it appears that bondholders anticipate that Montreal-based BCE will opt for a financial restructuring of Teleglobe.
Analysts have said such an outcome would likely involve tough negotiations with creditors, including requests from BCE that bondholders take a "haircut."
Dvai Ghose, senior telecom analyst with CIBC World Markets Inc. in Toronto, said in notes prepared for a presentation to investors Thursday he expects BCE will offer bondholders 20 cents on the dollar, a total of about $390-million in cash, with new bonds carrying 50 cents on the original dollar of face value.
That would slash Teleglobe's bond debt to $490-million from the current $1.22-billion.
Mr. Ghose also sees BCE negotiating a deal with its banks on the $1.25-billion due in July, with the banks demanding that Teleglobe pay back at least $255-million, or 20 per cent.
In return, BCE could get a new bank line of $510-million, but at an increased interest cost of 9 per cent, compared with 4 per cent.
But he says all bets are off if U.S. telecommunications giant SBC Communications Inc. exercises its put option and sells back to BCE its 20-per-cent stake in Bell Canada, at an estimated cost to BCE of up to $7-billion (Canadian). The put is exercisable in the second half of this year.
Assuming the higher debt load to pay for the stake would put BCE's A-plus credit rating at risk, and possibly Bell Canada's as well, Mr. Ghose said in his presentation.
BCE might then have no choice but to walk away from Teleglobe, as well as another troubled subsidiary, emerging markets wireless operator Bell Canada International Inc., he said.
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