Esprit parent to placate defaulted bondholders

Struggling pan-European reseller of voice capacity Esprit had issued $500m worth of high yield or junk bonds in four separate sets. Repayments on two of them were last week met by $17m the company had in an escrow account. Esprit and its parent announced that a further $12m due would not be paid.

"We have the cash," said Robert Amman, CEO of GTS in a prepared statement. "But we plan to sell Esprit and focus on our profitable broadband business. It did not make sense to throw more money after a company which is now worth less than its total debt."

Tim Dillon, analyst with top US research group Current Analysis, said: "They're not the only guys in this position. With the slide in the market they were right to ring-fence the debt. The question now is who would want to buy it?

"Even if you had a voice reseller in profit with a bulging balance sheet, it wouldn't be attractive. I'd be worried if anyone wanted to buy Esprit and that debt."

Esprit bonds had been selling well below half face value in the weeks prior to the announcement. GTS and its investment bankers will be meeting bondholders tomorrow to come to an agreement.

GTS had ring-fenced the Esprit bond issues so that a default will not put an obligation on GTS, which has the largest cross-border fibre optics network in Europe. GTS Europe, the broadband data division, has issued bonds worth $1bn. GTS itself owes $570m in convertible debentures and senior debt.

A fund manager at a leading City bank said: "The worry is that this will cut confidence in other telecoms companies."