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Money Never Sleeps
03-May-13 Alternative investors ride junk wave, exit restructured companies and tricky deals as bondholders take on more risk – Distressed Briefing
Distressed investors are taking advantage of the booming bond market to exit complex deals and transfer risk onto yield-hungry buysiders. The latest attempt by beleaguered eircom to reenter the high yield market, after wiping out a EUR 350m bond a year ago (alongside another cEUR 1.4bn of debt), could set a trend. The Irish telecom operator follows in the footsteps of Sanitec and Kloeckner Pentaplast, both with turbulent past, which also issued bonds in the last couple of days.
“The current market could last for a while. It makes sense for lenders in post restructuring deals to seek an exit in the high yield market,” one hedge fund investor noted.
Lenders in Irish telecom operator eircom will sigh with relief when and if the proposed EUR 310m bond prices. Proceeds from the issuance will be used to buy back part of the EUR 2.344bn facility B restructured last year. The buyback will be done via a Dutch auction targeting a 90-95 price range.
Large lenders like GSO Capital, Alcentra, Avoca and Deutsche Bank will have a chance to tender their bonds and begin recouping some of the losses sustained in the workout. Depending on the acquisition price, some funds could actually make money out of the process.
“Some lenders will probably tender the loans, then reinvest the money into the new instrument which will yield higher than the loans and be more liquid,” the investor added. The bond will only be a small part of the debt structure, but it could be a start as the company bullet loan facility matures in 2017.
eircom, which closed its restructuring in June 2012, is not out of the woods yet as it faces increasing competition and declining earnings in financial crisis stricken Ireland.
Under the workout, which was sanctioned by an Irish judge through the examinership process, the company’s capital structure lost around 40% in weight. More than EUR 600m PIK debt and EUR 350m junior FRN were written off, while the EUR 350m second lien debt was slashed to just EUR 35m and its EUR 2.7bn first lien debt cut to EUR 2.3bn.
Sanitec’s lenders finally got a chance to exit the company more than three years after an overhaul of the capital structure reduced the debt pile to EUR 300m from EUR 969m in 2009. The proceeds of the newly-issued EUR 250m FRN will repay both existing debt and finance a EUR 100m dividend to sponsor EQT.
The producer of ceramics sanitary improved its performance since 2009, with EBITDA increasing to EUR 107.6m in FY12 from EUR 58.4m at the end of 2009 as operations and production have been streamlined and costs have been brought down. Leverage through the new bonds will be a meagre 1.9x based on just EUR 207m of pro-forma net debt. Despite all this, high exposure to the cyclical construction sector clouds the company’s future.
Kloeckner Pentaplast issued a EUR 150m senior PIK toggle yesterday to repay existing preferred equity certificates. The deeply subordinated note is not the first new debt brought to market by the German packaging group since its restructuring last year. Strong performance after the workout helped the company place both loans and bonds.
Transferring risk
Post restructuring deals aren’t the only ones loan and alternative investors are keen to dump into the high yield market. An abundance of liquidity and hunger for yields make everything possible. Retailers like German Takko and more recently New Look have issued bonds to refinance existing loans.
Once tipped by distressed investors as a candidate for workout, given its debt mountain and lacklustre performance, New Look has just priced a GBP 800m senior secured bond to repay its outstanding senior and existing mezzanine facilities.
Clondalkin and ATU could also follow in the footpath of eircom, New Look, and the likes, and go down the bond route.
While the Irish packaging group has some chances after it managed to sell assets and reduce leverage, the German auto parts retailer could be a real stretch. Everything seems to conspire against ATU’s refinancing of EUR 150m senior unsecured FRNs due October 2014, as well as 11% EUR 350m senior secured and EUR 75m senior secured FRNs due May 2014. The company results came below the levels the company had indicated as necessary for a refi and an attempted sale of the business is going nowhere.
“The high yield market is really hot, you should never say never. But the company has shown very little deleveraging capacity and low growth potential in the last few years,” a source previously said.
Some real distressed
With the high yield bond market bonanza, the distressed pipeline remains relatively dry. Old names like UK directories hibu, motorway operator M6 Toll and SolarWorld continue to muddle through their restructuring processes but with no finale in sight and only a few new credits like IVG Immobilien and Samos Servicios are left to lure distressed investors.
Spanish real estate vehicle Samos Servicios y Gestiones is heading for a rework of its capital structure ahead of an upcoming onerous maturity wall. While the group is still servicing its debt, a refinancing of close to EUR 2bn in facilities looks increasingly unlikely with the junior tranche at risk of being impaired. But as there are a number of crossholders between senior and mezzanine creditors, a cram down of the latter will not be straightforward.
The presence of hedge funds in the structure will complicate the situation further, as reported.
A group of funds has gone private on IVG and will now have a chance to take a close look at the company’s complex balance sheet. The fund buyers include GSO Capital, Apollo Global Management, Davidson Kempner, Oaktree Capital Management and Varde Partners.
The company plans to present a proposal by this month and would like to cut bank debt by EUR 1bn as well as wipe out its EUR 400m converts and EUR 400m hybrid notes. The Bonn-based group has EUR 2.11bn loans due in September 2014 and an additional EUR 740m of project financing loans and other facilities. Below this debt pile sit EUR 400m 1.75% unsecured convertible notes due 2017 and EUR 400m 8% perpetual hybrid notes.
Both bondholders and lenders are organising and getting ready to fight.
hibu lenders’ committee presented the company with a draft termsheet last week and plans to keep between GBP 1.5bn and GBP 1bn of the debt in the capital structure, of which only GBP 500m would be cash pay and the rest PIK-ed. Hibu currently has around GBP 2.2bn first lien debt.
German solar group SolarWorld got 80% of its lenders on board on a restructuring proposal and is now in the process of contacting bondholders. The plan aims to leave EUR 300m of debt in the company, down from around EUR 930m, as reported. The group’s debt structure includes EUR 400m 6.125% 2016s, EUR 150m 6.375% 2017s, as well as EUR 375m of pari passu ranking Schuldschein loans. Hedge SVP is one of the largest loan holders.
The German solar cell maker will also likely agree to make a cash contribution to all creditors totalling around EUR 120m payable in three installments over a period of time. The new five-year loan will carry blended margins of Euribor+ 400bps in cash and 300bps in PIK with a 1% Euribor floor. The deal will include a protection mechanism to make sure the company does not run out of money when it pays creditors, as reported.
In a first stage, the debt will be converted into equity and lenders and bondholders will end up owning around 95% of the company pro rata to their debt holdings. In a second stage, management and other strategic investors could buy back up to around 40% of the equity.
Distressed investors are taking advantage of the booming bond market to exit complex deals and transfer risk onto yield-hungry buysiders. The latest attempt by beleaguered eircom to reenter the high yield market, after wiping out a EUR 350m bond a year ago (alongside another cEUR 1.4bn of debt), could set a trend. The Irish telecom operator follows in the footsteps of Sanitec and Kloeckner Pentaplast, both with turbulent past, which also issued bonds in the last couple of days.
“The current market could last for a while. It makes sense for lenders in post restructuring deals to seek an exit in the high yield market,” one hedge fund investor noted.
Lenders in Irish telecom operator eircom will sigh with relief when and if the proposed EUR 310m bond prices. Proceeds from the issuance will be used to buy back part of the EUR 2.344bn facility B restructured last year. The buyback will be done via a Dutch auction targeting a 90-95 price range.
Large lenders like GSO Capital, Alcentra, Avoca and Deutsche Bank will have a chance to tender their bonds and begin recouping some of the losses sustained in the workout. Depending on the acquisition price, some funds could actually make money out of the process.
“Some lenders will probably tender the loans, then reinvest the money into the new instrument which will yield higher than the loans and be more liquid,” the investor added. The bond will only be a small part of the debt structure, but it could be a start as the company bullet loan facility matures in 2017.
eircom, which closed its restructuring in June 2012, is not out of the woods yet as it faces increasing competition and declining earnings in financial crisis stricken Ireland.
Under the workout, which was sanctioned by an Irish judge through the examinership process, the company’s capital structure lost around 40% in weight. More than EUR 600m PIK debt and EUR 350m junior FRN were written off, while the EUR 350m second lien debt was slashed to just EUR 35m and its EUR 2.7bn first lien debt cut to EUR 2.3bn.
Sanitec’s lenders finally got a chance to exit the company more than three years after an overhaul of the capital structure reduced the debt pile to EUR 300m from EUR 969m in 2009. The proceeds of the newly-issued EUR 250m FRN will repay both existing debt and finance a EUR 100m dividend to sponsor EQT.
The producer of ceramics sanitary improved its performance since 2009, with EBITDA increasing to EUR 107.6m in FY12 from EUR 58.4m at the end of 2009 as operations and production have been streamlined and costs have been brought down. Leverage through the new bonds will be a meagre 1.9x based on just EUR 207m of pro-forma net debt. Despite all this, high exposure to the cyclical construction sector clouds the company’s future.
Kloeckner Pentaplast issued a EUR 150m senior PIK toggle yesterday to repay existing preferred equity certificates. The deeply subordinated note is not the first new debt brought to market by the German packaging group since its restructuring last year. Strong performance after the workout helped the company place both loans and bonds.
Transferring risk
Post restructuring deals aren’t the only ones loan and alternative investors are keen to dump into the high yield market. An abundance of liquidity and hunger for yields make everything possible. Retailers like German Takko and more recently New Look have issued bonds to refinance existing loans.
Once tipped by distressed investors as a candidate for workout, given its debt mountain and lacklustre performance, New Look has just priced a GBP 800m senior secured bond to repay its outstanding senior and existing mezzanine facilities.
Clondalkin and ATU could also follow in the footpath of eircom, New Look, and the likes, and go down the bond route.
While the Irish packaging group has some chances after it managed to sell assets and reduce leverage, the German auto parts retailer could be a real stretch. Everything seems to conspire against ATU’s refinancing of EUR 150m senior unsecured FRNs due October 2014, as well as 11% EUR 350m senior secured and EUR 75m senior secured FRNs due May 2014. The company results came below the levels the company had indicated as necessary for a refi and an attempted sale of the business is going nowhere.
“The high yield market is really hot, you should never say never. But the company has shown very little deleveraging capacity and low growth potential in the last few years,” a source previously said.
Some real distressed
With the high yield bond market bonanza, the distressed pipeline remains relatively dry. Old names like UK directories hibu, motorway operator M6 Toll and SolarWorld continue to muddle through their restructuring processes but with no finale in sight and only a few new credits like IVG Immobilien and Samos Servicios are left to lure distressed investors.
Spanish real estate vehicle Samos Servicios y Gestiones is heading for a rework of its capital structure ahead of an upcoming onerous maturity wall. While the group is still servicing its debt, a refinancing of close to EUR 2bn in facilities looks increasingly unlikely with the junior tranche at risk of being impaired. But as there are a number of crossholders between senior and mezzanine creditors, a cram down of the latter will not be straightforward.
The presence of hedge funds in the structure will complicate the situation further, as reported.
A group of funds has gone private on IVG and will now have a chance to take a close look at the company’s complex balance sheet. The fund buyers include GSO Capital, Apollo Global Management, Davidson Kempner, Oaktree Capital Management and Varde Partners.
The company plans to present a proposal by this month and would like to cut bank debt by EUR 1bn as well as wipe out its EUR 400m converts and EUR 400m hybrid notes. The Bonn-based group has EUR 2.11bn loans due in September 2014 and an additional EUR 740m of project financing loans and other facilities. Below this debt pile sit EUR 400m 1.75% unsecured convertible notes due 2017 and EUR 400m 8% perpetual hybrid notes.
Both bondholders and lenders are organising and getting ready to fight.
hibu lenders’ committee presented the company with a draft termsheet last week and plans to keep between GBP 1.5bn and GBP 1bn of the debt in the capital structure, of which only GBP 500m would be cash pay and the rest PIK-ed. Hibu currently has around GBP 2.2bn first lien debt.
German solar group SolarWorld got 80% of its lenders on board on a restructuring proposal and is now in the process of contacting bondholders. The plan aims to leave EUR 300m of debt in the company, down from around EUR 930m, as reported. The group’s debt structure includes EUR 400m 6.125% 2016s, EUR 150m 6.375% 2017s, as well as EUR 375m of pari passu ranking Schuldschein loans. Hedge SVP is one of the largest loan holders.
The German solar cell maker will also likely agree to make a cash contribution to all creditors totalling around EUR 120m payable in three installments over a period of time. The new five-year loan will carry blended margins of Euribor+ 400bps in cash and 300bps in PIK with a 1% Euribor floor. The deal will include a protection mechanism to make sure the company does not run out of money when it pays creditors, as reported.
In a first stage, the debt will be converted into equity and lenders and bondholders will end up owning around 95% of the company pro rata to their debt holdings. In a second stage, management and other strategic investors could buy back up to around 40% of the equity.
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