Digicel launched the sale of over $2.7bn of debt earlier this week to refinance some of its post-reorg capital stack. As part of its return to the capital markets following its January 2024 restructuring, the Jamaica-based communications services provider is pitching prospective lenders on its leaner business model and a targeted net leverage goal of 2.9x by FY 28 — more than two full turns below its pre-restructuring leverage of 5.1x.

On Tuesday, a JP Morgan-led bank group commenced syndication of $1.55bn of senior secured notes due 2032 with initial price talk at 9%, while a Barclays-led bank group launched $415m of senior unsecured notes due 2033 with initial price talk at 10.75%.

JP Morgan is also leading a $750m term loan B due 2032 that is talked at SOFR+525bps (0% floor) and a 99 OID. Proceeds will repay existing debt including a term loan, senior secured notes due 2027 and senior unsecured notes due 2028. Bond commitments are due by 30 July, while loan commitments are due 29 July at 5pm ET.

Pro-forma for the transaction, the company will have net leverage of 3.5x based on FY 25 covenant-adjusted EBITDA, according to documents reviewed by 9fin.

But there seems to be a potential hurdle — the new debt documents contain aggressive, issuer-friendly terms that appear to be similar to those in debt documents the company issued 2019 and earlier, according to 9fin sources. While 2019 marked a surge in borrower-friendly terms, the COVID era ushered the rise of sponsor-led LMEs where loose language was exploited, which pushed lenders to focus on tightening up language in new issuance going forward.

Interestingly, one of the Digicel executives said in a 23 July lender call that the covenants in this debt transaction are “tighter” than what is normally seen in other new issue debt documents. They attributed this to the fact that the reorganized company is majority owned by its former creditors including Contrarian Capital Management, PGIM and GoldenTree Asset Management.

A review of some of these covenants by 9fin, however, does not seem to suggest creditor-friendly thinking. This article will examine some of the aggressive provisions the company included its senior secured notes to maximize flexibility right out of the gate, particularly on its ability to incur future debt and make restricted payments and permitted investments. Spokespeople for JP Morgan and Barclays declined to comment on the structuring of these terms.

But before diving into that, here’s an overview of the reorganized company:

Lien, mean, calling machine

Digicel is a mobile communications services provider operating in the Caribbean region. The company was founded in 2001 by controversial Irish billionaire Denis O’Brien, who remains involved in the restructured company as a minority investor.

In 2023, the company filed for bankruptcy, which was carried out through a Bermuda Schemes of Arrangement and an associated Chapter 15 filing. Upon its exit in 2024, Digicel was taken over by creditors including the aforementioned fund managers as part of a debt-for-equity swap.

Published reports from last November also revealed that Digicel was the subject of a probe conducted by the US Department of Justice over potential violations of the Foreign Corrupt Practices Act; the investigation into the company was closed earlier this year without filing charges after President Donald Trump issued an executive order pausing enforcement of the Act.

Following the restructuring, the company has focused on streamlining its business, deleveraging and reducing cost. Earlier this month, a Jamaican newspaper revealed the “immediate closure” of its Caribbean-wide news platform Loop News, in addition to Digicel’s plans to wind down sports broadcaster SportsMax.

Digicel’s management also indicated in the call that the company reduced interest expenses to $232m in FY 2025, versus $270m in FY 2024. Moody’s estimated in its report that the new debt, in addition to its expectation for positive free cash flow generation and a fully available revolver can “comfortably cover the term loan amortization payments of around $8m per year through 2031.”

For more details, including Digicel’s preliminary earnings for the quarter ending 30 June (Q1 FY 26), check out our Credit QuickTake here.

All the capacity

Under its $1.55bn senior secured notes preliminary offering memorandum, Digicel included three very company friendly — and accordingly, creditor unfriendly — features. The three features include:

1. Flexibility through credit facilities basket using ratio debt and reclassification;
2. A restricted payment carveout for certain permitted investments that does not reduce capacity; and
3. Allowance for — depending on how one reads the document — either nearly a billion or significantly more than a billion in day-one capacity.

Credit facilities debt incurrence language

The preliminary offering memorandum, under the “Certain Covenants” — Limitation on debt section describes four baskets for “Holdings” or any restricted subsidiary to incur debt (See 9fin’s Legal Bond Quicktake here). Those baskets consist of an aggregate amount not to exceed the sum of:

• (i) $200m plus
• (ii) $750m plus (x) the greater of $195m and (y) 25% of Consolidated Adjusted EBITDA of Holdings and its Restricted Subsidiaries, plus
• (iii) outstanding amounts in respect of any Ancillary Facility plus
• (iv) an unlimited amount so long as, in the case of this clause, after incurrence the Total Net Leverage Ratio does not exceed 3.50x

The provision goes on with three more subclauses. For this section we include paraphrasing and quotes from the OM in italics for clarity:

• (x) that debt may be incurred under any of the above subclauses “as selected by the Issuers in their sole discretion (except that Debt incurred under the First Lien Credit Facility on the Issue Date shall be deemed to be incurred under subclauses (i) or (ii) and cannot be reclassified),” (emphasis added). This should mean that debt incurred under (i) and (ii) on the “Issue Date” including the $750m term loan is counted against this capacity and can’t be reclassified, however wait for (z).
• (y) any debt intended to be incurred under the ratio debt clause “and another clause of this definition in a single transaction or series of related transactions… shall be calculated [as ratio debt] first without giving effect to any Debt to be incurred pursuant to subclauses (i), (ii) or (iii)…” and
• (z) “any portion of any debt that is incurred under subclause (i), (ii) or (iii), as applicable, unless otherwise elected by the Issuers, shall automatically and without need for action by any Person, be reclassified as having been incurred under clause (a)(iv) of this definition if, at any time after the incurrence thereof, when financial statements required pursuant to ‘—Reports to Holders’ are delivered, such portion of such Debt would, using the figures reflected in such financial statements, be (or have been) permitted under the Total Net Leverage Ratio set forth in clause (a)(iv).” (emphasis added)

As explained in 9fin’s debt covenant educational, this language maximizes the amount of debt that the issuer can incur because if the issuer first incurred debt under a fixed basket it would increase the TNLR before incurring any debt under that basket thereby minimizing the amount available. Additionally, this OM allows for automatic reclassification across ratio debt and fixed debt baskets when capacity is available. This means any time the TNLR drops below 3.5x — e.g. if EBITDA increased — any debt incurred under the fixed baskets (up to 3.5x TNLR) will reset and become available for use again.

Restricted payments and permitted investments

As part of the list of restricted payment carveouts, one of the provisions cross references to permitted investments in a way that does not reduce the permitted investment capacity. Under “Limitation on Restricted Payments(3)(i) that allows for additional capacity to allow Holdings or any restricted subsidiary to “consummate any transaction permitted under the definition of ‘Permitted Investments’ (other than clauses (j) and (t) thereof).” This is a list of over 30 potential investments — “Cash or Investments that were Cash Equivalents at the time made” — and some of which have their own specific basket limitations. Notably, this provision does not reduce the amount of permitted investment capacity or general RP capacity.

Ratios that allow for day one capacity

This bond will be issued at the Digicel International Finance Limited (DIFL) level on a first lien senior secured basis. As mentioned above, additional first lien debt can be incurred in an unlimited amount as long as the company can meet a 3.5x TNLR ratio test — and then the company can continue to incur additional first lien debt under the fixed baskets.

According to 9fin’s Digicel Credit QuickTake, DIFL currently has a TNLR of 3.1x, which means on day one, DIFL can incur at least $900m in additional first lien debt — since DIFL can incur just over $300m under its ratio basket and then an additional amount under its fixed baskets.

Spokespeople for GoldenTree, PGIM and Contrarian did not return a request for comment. Digicel declined to comment.