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Emmet Mc Nally

Diebold Nixdorf, the ATM and self-checkout manufacturer, extended the exchange deadline for its $72.1m 8.5% 2024 SUN stubs from 24 March to 5pm NYC time on 7 April, after only $6.27m in principal amount of the bonds were validly tendered by the first deadline.

The company is facing an increasingly precarious situation with these stub notes, as failure to reach a tender quantum of $52.1m (i.e. $20m or less principal not tendered) leaves Diebold obliged to raise equity capital to fund redemption next year or face an event of default (EoD), under the terms of the new super senior notes, the exchanged TLBs and 2025 SSNs (9fin clients can see the cap table).

The challenge is that Diebold’s ability to raise equity capital at present looks very limited. The current share price of $0.82 for a market cap of $65.2m means the share capital would have to more than double to fund redemption or repayment of the not yet tendered $65.8m stubs. 

At this point, stub noteholders have had ample time to consider the economics of the exchange.

Diebold launched its first exchange offer for the SUNs in late November alongside a broader recap of the group. Take-up on the SUNs was significantly below that achieved for exchanges on the 2025 SSNS and 2023 TLBs. The second exchange of the stubs launched on 10 February.

The economics are less favourable now, we suggest, as equity warrants on offer for up to 19.9% of Diebold’s share capital look much less attractive than they did in November/December when the share price was anywhere from $2 up to $2.75. Similarly, the $333.6m principal ($400m notional) exchanged 2026 second lien PIK toggle notes are indicated at a very lowly 26.6-mid price as of writing, having traded down from just under 50 in mid March. 

The company noted in the second exchange announcement that it believed “trading in the 2024 Senior Notes [stubs] has been limited and sporadic”, suggesting the noteholders’ profile has not changed markedly. Adding to the woes is the fact the exchanged stub notes will not be fungible with the already exchanged second lien PIK Toggle notes, meaning liquidity post-exchange will be limited, especially if only $6.27m in outstanding principal is exchanged.

It remains to be seen if the requisite exchange threshold is reached, though the probability is certainly very slim. 

Other problems surface not long after mostly successful A&E

Prominent EoD risks aside, Diebold has also faced unexpected headwinds since finalising its mostly successful A&E in late December (9fin clients can see the key terms and docs; TSA Legal QuickTake, and cap table). 

The group first raised liquidity concerns in its 2022 annual report on 16 March, stating that that it “will not generate sufficient cash from operations or have access to other sources of liquidity to sustain our operating needs or to meet our obligations as they become due over the next twelve months”. 

The need was very immediate, owing to all borrowing capacity under to new $250m ABL being used as of December 2022 and a reduction in available assets in the appropriate jurisdictions during Q1 23 lowering the borrowing base beyond expectations. The reduction in available assets was down to slower than expected business in Q4 22 along with collections outpacing billings, the company said. 

As of 16 March 2023, the company was looking to discuss with lenders a going-concern waiver, immediate solutions for temporary liquidity and the longer-term considerations for the capital structure. 

The requisite amendments and limited waiver were duly granted on 21 March, with certain lenders providing Diebold with a $55m First In Last Out (FILO) tranche which matures on 4 June 2023 to support short-term liquidity needs.

A short-term liquidity crisis and/or potential default on the ABL have therefore been averted. Equally importantly, the extra liquidity should see Diebold able to fulfil orders on time without further comprising commercial relationships which have already likely been affected by the noise surrounding the company in the past six months. 

The tail risks are certainly not dissipated, however, with an EoD in 2024 or earlier a very distinct possibility. S&P has already responded to the elevated risks by downgrading the senior secured debt to CCC on and the 2L PIK notes to CC. All ratings are on CreditWatch with negative implications, reflecting the uncertainty around the ability to address 2024 maturities and S&P’s belief that a debt restructuring is likely.

We hope to take a closer look at Diebold’s liquidity position, and the potential implications from a failure to reach the requisite exchange threshold or raise equity capital to redeem the stub 2024 notes, in the coming days.

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Diebold stub exchange extended with potential EoD looming

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