Digicel extends exchange offers, consent bids for 2021, 2023 notes

By Marisa Wong

Los Angeles, May 18 – Digicel Ltd. (DL), Digicel Group One Ltd. (DGL One) and Digicel Group Two Ltd. (DGL Two) announced an extension of their exchange offers and consent solicitations.

Digicel is extending the exchange offers and solicitations for DL’s 6% notes due 2021 and its 6¾% notes due 2023 to 11:59 p.m. ET on May 20 from 11:59 p.m. ET on May 15.

So far, holders have tendered $1,175,720,000, or 90.44%, of the 2021 notes and $66,366,000, or 7.17%, of the 2023 notes, according to a Monday press release.

Tenders may no longer be withdrawn as of 5 p.m. ET on April 14.

Previous extensions

Digicel previously extended the expiration date for the exchange offers and solicitations for DGL Two’s 8¼% senior notes due 2022 and DGL Two’s 9 1/8% senior cash pay/PIK notes due 2024 and, in order to effect a scheme of arrangement under Bermuda law with respect to DGL One, DGL One’s 8¼% senior notes due 2022 to 11:59 p.m. ET on June 15.

At the same time, Digicel extended the exchange offers and solicitations for DL’s 6% notes due 2021 and 6¾% notes due 2023 to 11:59 p.m. ET on May 15.

Digicel also extended the expiration date for the consent solicitation for the 8¾% senior secured notes due 2024 co-issued by Digicel Finance Ltd. (DIFL) and Digicel Holdings (Bermuda) Ltd. (Digicel Holdings) to 11:59 p.m. ET on May 29.

In addition, Digicel announced it increased the exchange consideration for DL’s 6¾% notes due 2023.

Digicel is offering to exchange any and all of its $925 million of outstanding 2023 notes for new 8% senior unsecured notes due 2027 to be issued by DL.

The total consideration per $1,000 principal amount of 2023 notes is $950 principal amount of new notes, increased from $850, and includes an early tender premium of $50 of new notes.

Any holder tendering their notes by the expiration of the offer is now eligible to receive the total consideration. Previously, only holders tendering by the early tender deadline at 5 p.m. ET on April 14 were eligible to receive the early tender premium.

The new DL notes will accrue cash interest at a rate of 8%. The new DL notes will be guaranteed on a subordinated basis by each of DL’s subsidiaries that guarantee the existing 2023 notes.

The companies launched the exchange offers and related consent solicitations on April 1. The purpose is to reduce Digicel’s leverage, extending its debt maturities, reducing interest costs and improving its liquidity position, as previously announced.

The existing securities are DL’s $1.3 billion outstanding 6% notes due 2021 (25380QAG4, G27649AE5); DL’s $925 million outstanding 6¾% notes due 2023 (25380QAH2, G27649AG0); DGL One’s $1 billion outstanding 8¼% senior notes due 2022 (Cusip: 25382DAA4, G27634AA5); DGL Two’s $937,149,000 outstanding 8¼% senior notes due 2022 (Cusip: 25382FAB7, G27639AB2); and DGL Two’s $993,015,769 outstanding 9 1/8% senior cash pay/PIK notes due 2024 (25382FAA9, G27639AA4).

Preliminary results

According to a prior press release, holders had tendered as of April 28 the following:

• $985,394,379, or 98.5%, of DGL One’s 8¼% senior notes due 2022;

• $839,936,203, or 89.6%, of DGL Two’s 8¼% senior notes due 2022;

• $892,269,116, or 89.9%, of DGL Two’s 9 1/8% senior cash pay/PIK notes due 2024;

• $1,166,645,000, or 89.7%, of DL’s 6% notes due 2021; and

• $54,921,000, or 5.9%, of DL’s 6¾% notes due 2023.

Because more than 50% of the holders of each series of notes, other than the existing DL 2023 notes, had delivered their consents and withdrawal rights had expired, Digicel executed supplemental indentures that eliminate substantially all restrictive covenants and events of default in the indentures for each series of existing notes other than the DL 2023 notes, all of which are currently effective.

Background

At the start of the offers, Digicel said that despite many years of significant investment in its world-class networks and infrastructure and solid underlying performances across its markets, its current debt levels remain high.

The company has indicated for some time its commitment to reducing its debt to more sustainable levels, and the tender offers and consent solicitations are a key step in that process.

The transaction structure and consideration presented in the tender offers are a result of constructive negotiations with some of Digicel’s debtholders, according to a prior press release.

As of April 1, Digicel and its supporting debtholders signed a lockup and support agreement representing about $491 million aggregate outstanding principal amount of existing DGL One notes, about $475 million of existing DGL Two 2022 notes, about $154 million of existing DGL Two 2024 notes and about $391 million of existing DL 2021 notes.

If completed with full participation, the tender offers and related measures would reduce Digicel’s outstanding debt under its bank facilities and bond indentures by about $1.7 billion, from about $7.0 billion to roughly $5.3 billion; reduce its annual cash interest payments by about $130 million; and extend its maturities, which will give Digicel increased liquidity and flexibility to access additional liquidity during the next year, according to the release.

DGL Two, DGL One offers

In the case of existing DGL Two and DGL One securities, Digicel Group 0.5 Ltd. (DGL0.5), a newly formed holding company that will own all of DGL One’s current subsidiaries and other assets upon settlement of the tender offers or related schemes, is offering to exchange the following:

• Any and all of the outstanding DGL One notes for up to $941 million of newly issued secured notes due 2024 to be issued by DGL0.5. The total consideration is $941 principal amount of new notes, including an early tender premium of $50 of new notes, per $1,000 principal amount of old notes;

• Any and all of the outstanding DGL Two 2022 notes for up to $300 million of newly issued unsecured notes due 2025 to be issued by DGL0.5 and up to $50 million of newly issued 7% PIK perpetual convertible notes to be issued by DGL0.5. The total consideration is $320 principal amount of new unsecured notes, including an early tender premium of $25 of new unsecured notes, and $53 principal amount of convertible notes per $1,000 of old notes; and

• Any and all of the outstanding DGL Two 2024 notes for up to $100 million of new DGL0.5 unsecured notes and up to $150 million of DGL0.5 convertible notes. The total consideration is $101 principal amount of new unsecured notes, including an early tender premium of $25 of new unsecured notes, and $151 principal amount of convertible notes per $1,000 of old notes.

New DGL0.5 notes

The new DGL0.5 secured notes due 2024 will accrue cash interest at a rate of 8% and PIK interest at a rate of 2%; will be guaranteed by Digicel Pacific Ltd., a direct subsidiary of DGL0.5 following the reorganization transactions; and be secured by first-priority liens on all capital stock of Digicel Pacific held by DGL0.5 as of the issue date, all capital stock of DL, a direct subsidiary of DGL0.5 following the reorganization transactions, held by DGL0.5 as of the issue date, DGL0.5’s receivable under Digicel (Central America) Group Ltd.’s credit facility and all capital stock of Digicel (PNG) Ltd. owned by Digicel Pacific.

The new DGL0.5 unsecured notes due 2025 will accrue cash interest at a rate of 5% and PIK interest at a rate of 3%.

Interest on the DGL0.5 secured notes due 2024 and DGL0.5 unsecured notes due 2025 may be paid entirely in kind during the first year after issuance.

The convertible notes will accrue PIK interest at a rate of 7% and, if they remain outstanding after the third anniversary, are convertible into 49% of the total outstanding common shares of DGL0.5.

As previously disclosed, in connection with the tender offer, DGL One and DGL Two have elected to take advantage of a 30-day grace period permitted under the relevant indentures and defer making the interest payment on the existing DGL One notes that was otherwise due on March 30, the interest payment on the existing DGL Two 2022 notes that was otherwise due on March 30 and the interest payment on the existing DGL Two 2024 notes that was otherwise due on April 1.

Holders who tender under the exchange offer will not receive accrued interest and will waive any claims to it.

DL exchange offers

In the case of existing DL securities, DL, Digicel Holdings and DIFL are offering to exchange any and all of the outstanding DL 2021 notes for an option, subject to proration, of the following:

• Up to an aggregate principal amount of $626.6 million of additional notes to the existing 8¾% senior secured notes due 2024 co-issued by Holdings and DIFL;

• Up to an aggregate principal amount of $317.2 million of senior unsecured notes due 2025, to be co-issued by Digicel Holdings and DIFL; and

• Up to an aggregate principal amount of $256.1 million of subordinated notes due 2026, to be co-issued by Digicel Holdings and DIFL.

The total consideration per $1,000 principal amount of existing DL 2021 notes is $873 principal amount of add-on or new notes. The total consideration includes an early tender premium of $50 principal amount of add-on DIFL secured notes.

If acceptance of all tendered DL 2021 notes would cause the amount of new notes to be issued to exceed any of the exchange caps, new notes will be allocated based on a waterfall hierarchy, with priority given to the additional DIFL secured notes, followed by the DIFL unsecured notes and then thirdly the DIFL subordinated notes.

In the event that all outstanding 2021 notes are tendered and accepted for exchange or DL promotes a scheme with respect to the 2021 notes and that scheme is completed, each holder that tendered their existing 2021 notes prior to the early tender date will receive $482 principal amount of additional DIFL secured notes, $244 of new DIFL unsecured notes and $197 principal amount of DIFL subordinated notes for every $1,000 principal amount of existing 2021 notes tendered.

New DIFL notes

The additional DIFL secured notes will accrue cash interest at a rate of 8¾%; will be guaranteed by each of DIFL’s subsidiaries that guarantee DIFL’s senior secured credit facility and the existing DIFL notes; and will be secured by first-priority liens on substantially all of the tangible and intangible assets of DIFL, Digicel Holdings and the DIFL guarantors.

The add-on notes will vote and be treated, along with the existing DIFL notes, as a single class. However, the add-on notes will not have the same Cusip and ISIN numbers as the existing notes and will not be fungible with the existing notes.

The new DIFL unsecured notes will accrue cash interest at a rate of 6% and PIK interest at a rate of 7% and will be guaranteed by each of the DIFL guarantors.

The new DIFL subordinated notes will accrue cash interest at a rate of 8%, subject to increase if additional credit support is not provided, and will be guaranteed on a subordinated basis by each of DL’s subsidiaries that guarantee the existing 2023 notes. The new DIFL subordinated notes will rank equal in right of payment with all existing and future subordinated indebtedness of DIFL and Digicel Holdings, including their guarantees of the existing DL notes.

Conditions

Each tender offer is subject to some conditions, including the following minimum tender thresholds:

• In the case of the DGL Two 2022 offer, a minimum of $468.6 million of existing 2022 notes;

• In the case of the DGL Two 2024 offer, a minimum of $496.6 million of existing 2024 notes;

• In the case of the DGL One offer, a minimum of $500.1 million of existing DGL One notes; and

• In the case of the DL 2021 offer, a minimum of $650.1 million of existing 2021 notes.

Each tender offer is a separate offer and may be amended, extended, terminated or withdrawn either as a whole or with respect to a particular series.

If the issuer of a series of existing notes receives tenders from holders of at least 75% of the outstanding principal amount of that series, the issuer reserves the right to promote a scheme of arrangement under section 99 of the Companies Act 1981 of Bermuda with respect to that series. That scheme would provide substantially the same or better economic terms compared to the tender offer.

Consent solicitations

The issuers of the existing notes are also soliciting consents to some proposed amendments to the indentures governing the notes as well as some waivers, namely a scheme default waiver, a financial reporting waiver and an interest payment waiver.

In connection with the Rule 144A and Regulation S offers, DC Advisory and Davis Polk & Wardwell LLP acted as advisers to Digicel, and PJT Partners LP, Weil, Gotshal & Manges LLP and Kirkland & Ellis LLP were advisers to the ad hoc group of debtholders.

DIFL consent solicitation

Concurrently with the exchange offers and related consent solicitations above, Digicel Holdings and DIFL announced a separate consent solicitation seeking consents to effect some changes to the indenture governing the existing 8¾% senior secured notes due 2024 co-issued by Digicel Holdings and DIFL.

The proposed amendments would permit, among other things, the incurrence of additional debt under DIFL’s senior credit facility of up to $100 million.

Holders who deliver consents by the new deadline, 11:59 p.m. ET on May 29, will be eligible to receive a consent fee of $1.00 in cash for each $1,000 principal amount of existing notes.

Approval of the proposed amendments requires consents from holders of a majority in aggregate principal amount of the existing notes.

Payment of the consent fee is conditioned on, among other things, receipt of the necessary consents on or prior to the expiration date.

Epiq Corporate Restructuring, LLC (tabulation@epiqglobal.com, 646 282-2500 for banks and brokers and 866 897-6433 or 646 282-2500 for all others) is the information and tabulation agent for all of the tender offers and consent solicitations.

Citigroup Global Markets Inc. (212 723-6106) is the solicitation agent.

Based in Kingston, Jamaica, Digicel is a telecommunications and entertainment provider with operations in the Caribbean, Central America and Asia Pacific.

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