Bondholder group sends acceleration notices to Essity

Will Macadam

21 October 2024•2 min read

A group of bondholders has sent acceleration notices to Essity, the company confirmed in a statement last week, as the dispute rumbles on over whether a decision to sell a majority stake in the group’s Asia business counts as an event of default under its bond documentation.

The bondholder group, which is advised by Houlihan Lokey and White & Case, sent several acceleration notices to the Swedish hygiene products group over the course of last week, a source familiar with the matter confirmed. The group was last reported as representing around €270m across Essity bonds maturing in 2029, 2030, and 2031 back in March.

Essity characterised the notices as a “demand” for early repayment, in its statement on 17 October; the hygiene product maker had also said it had obtained “professional advice, that an event of default had not occurred and that the demand is unfounded”.

Linklaters has been assisting the company with the dispute, according to sources familiar with the matter. Linklaters did not immediately respond to requests for comment.

Bondholders believe that Essity’s HKD 14.6bn (roughly €1.7bn) sale of its nearly 52% stake in Asian hygiene product manufacturer Vinda counts as an event of default under the cessation of business and material subsidy clauses in the documentation of Essity’s €3.8bn euro medium term note programme.

The creditor group argues that the Vinda sale qualifies as the termination of a “substantial part of its business” — substantial meaning greater than 10% of Essity’s consolidated turnover or assets under the EMTN documentation.

Vinda accounted for SEK 25.1bn (€2.2bn) of Essity’s net sales in FY-2022, against net sales of SEK 156.2bn (€13.8bn) for the whole group. Vinda’s assets were worth SEK 37.7bn (€3.3bn), compared to Essity’s total assets of SEK 210.6bn (€18.7bn). On a consolidated basis Vinda accounted for 16% of Essity’s sales and 18% of its assets.

Essity has previously rebuked claims that Vinda qualifies as a “significant” part of its business. The group suggested in a 21 March statement that as it only owned a 51.59% stake in Vinda, and therefore only accounted for 8.5% of Essity’s total sales.

The group did note in its March statement that Essity’s stake in Vinda had been consolidated at 100% since 2014.

Essity has ample liquidity to handle any sudden repayments as it tapped BNP Paribas as the agent for a €4bn unsecured revolver on 2 February, as reported. The revolver matures in December 2024 but could be extended up until June 2026 at the company’s discretion.

Essity declined to comment.

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