Ahead of a busy earnings season in a couple of weeks, A&E and restructuring activity has started to pick-up up markedly, despite the warmer financing climate. In addition there are a number of situations such as Orpea and Cineworld now at critical stages — with quite a few more sits remaining unnamed until we double-source and/or as the info is too tightly held, we don’t want to burn our sources.

Several companies on our Restructuring Tracker Watchlist and our Expected list are seeing fresh developments such as advisory pitches for Keter and Wittur and advisor appointments at Atento.

Despite all this, we still found time to look closer into the Vue CDS saga, with the determinations committee still deliberating after 10 days, and talked to private credit market participants about how private lenders and sponsors are dealing with distress, a key new area of coverage for us.

Does Orpea need support?

One of the most difficult aspects of a restructuring can be effective communication within your own group of creditors, especially if you have a wide and diverse set of holders with different motivations.

Typically, you will have a Steering Committee made up of less than half a dozen members which go ‘inside’ and become restricted to engage in talks. Then there is a wider sounding group to regularly communicate progress with and to ensure that you can gain consensus on what is negotiable and ensuring they know what your red lines are, and can deliver a wider deal.

Tensions can often arise, but most of the time differences are aired and argued behind closed doors. But in the case of Orpea’s “The Guns” and its splinter group ‘The Support Club’, the unsecured creditors’ dirty linen is being aired in public, with palpable animosity between the two.

Last Friday afternoon we revealed that the disgruntled unsecured creditor group was developing a counterproposal with Gleacher Shacklock appointed as financial advisors. They felt that they were frozen out of negotiations, bemoaning a high backstop fee going to the SteerCo only and not being available to all.

In return for the SteerCo and ‘Groupement’ (state fund CDC and French Insurers) subscribing to and backstopping the two €195m tranches in the third capital increase, they will receive warrants to subscribe to 1.45% of the shares for six months at €0.01 per share. According to 9fin’s calculations, the warrants are worth around €33m, based on a €2.3bn post reorg equity valuation.

On Tuesday, the company announced signed lock-up agreements with the SteerCo. It said that the five main institutions are “coordinating an extended group of unsecured financial creditors”. Lock up agreements are to be signed by the wider creditor group by early to mid-March, with the accelerated safeguard process to start by end-March.

But the Support Group had readied their counterproposal and term sheet by this point, teaming up with activist shareholders Concert’O adding that they were actively courting Schuldschein holders of over €1bn to add to their €500m position. They publicly posted these docs on their website, and arranged a public call for 4pm CET, the same day.

Their counter proposal offers 36c recovery and higher overall share allocations from 46% to 60%, compared to the 30c recovery and 40% to 49% of share capital that the company is offering. Any backstop fee is open to other unsecured creditors at a lower percentage.

Under their plan, Groupement would receive a 22% equity stake in return for a €650m injection. Concert’O would receive 17% equity in return for €500m investment and the Support Club and other unsecured creditors would receive 14% equity in return for the final €400m.

Dorian Lowell from Gleacher Shacklock said on the call: “It’s designed to be consensual and it provides higher equity allocations through these adjustments without depriving CDC and Groupement and Concert’O of the control at governance levels.”

He added their deal is “far more deliverable and far better alternative for everyone including the SteerCo” rather than the other proposal “where frankly in my view it will lead to a contested cross-class cramdown which really nobody wants.”

Lowell’s parting observation on the company’s lock up agreement is: “We don't think this was a very helpful step in the process — we think it's somewhat coercive… That Lockup basically chills bidding and blocked what could be a value-maximising transaction and procedurally we don't think that's particularly fair.”

A source close to the process told 9fin that the SteerCo and its advisors had tried to negotiate a higher recovery, in line with the Support Club, but they had to compromise on some of the deal terms in order to get a deal done. Sticking to a higher recovery level “was not deliverable”.

One of the main considerations in structuring the deal was to avoid breaching EU state aid rules, with a third party needed to invest alongside CDC, the French state fund, in the consortium. There is no room for changes, as the company has signed up to the current plan, supported by the (court-appointed) conciliator Hélène Bourbouloux, they said.

The source said that there isn’t a mechanism within safeguard which allows for a competing plan, with the court considering just the plan being presented to it. The G6 (senior secured creditors) will be used to cram down the unsecureds if two-thirds consent isn’t achieved and it is unlikely that the G6 would support the Support Club proposal, they suggested.

Flavie Hannoun from Lantourne et Associés, representing the Support Club, disputed their view:

“It's not a good solution to request to the court a cross-class cramdown — even if they try to do that it will be really risky.” She explained that the advisors do not think the company will be able to meet the criteria required. “They will have to demonstrate that the plan shows an equal treatment of creditors and it is not the case at this stage [as] you have some special advantages as Dorian has shown.”

She added that another main criteria under Safeguard is to demonstrate that there is no other better alternative solution — “we know today that there is one. And that's why we believe that only a plan that is supported by a majority of [unsecured] creditors would be implementable.”

Whatever your view, there is a interesting choice for unsecured creditors to make.

Some might think that a 75 bps lock-up fee isn’t sufficient to commit now and may prefer to sit on the sidelines and see if a compromise can be reached and a consensual deal presented to the court. Worst case, you get crammed down and achieve the same result less 75 bps of fees. Not a big deal, when the bonds are trading in the 20s.

News that the company’s liquidity position is better than expected, with enough cash to fund the business to the summer also removes some of the jeopardy.

My view is that we are entering into new territory with Orpea’s Sauvegarde, with no certainty a cross-class cramdown will work. Whether the Support Club can garner the attention of the court to present its plan is moot. The situation is also highly politicised, so a French solution is most likely.

But this could further damage the reputation of France as a jurisdiction for foreign investors. The new regime had raised hopes that situations such as Rallye and Comexposium were consigned to the dustbin of history. To be clear, I think this is just an inter-creditor economics dispute, not an abuse of process, but if their challenge isn’t heard by the court, it could create some waves.

Restricted Vue

Last week, we flagged that a request was put into the Credit Derivatives Determinations committee seeking to identify whether a restructuring credit event had occurred with respect to Vue International Bidco Plc. The UK cinema group’s restructuring closed a couple of weeks ago, with new debt being issued from Vue Entertainment Intl Ltd, a newly incorporated entity.

We wondered whether this was due to an orphaned entity, but no, we were told by those involved in the deal that this wasn’t the issue. The main problem is the public/private issue, as the public CDS were previously referenced against bonds before they were refinanced by term loans.

Surely a restructuring credit event has occurred?

After all, Vue told the market it concluded its recapitalisation on 26 January, outlining a debt/equity swap and extinguishment of second lien debt.

But no, the inference from the blurb on the determinations committee website is that the public information (such as Skeleton arguments from Vue’s Scheme of Arrangement) is insufficient to determine whether it has occurred. The committee has now met on four occasions, 6 Feb, 8 Feb, 13 Feb and 16 Feb, without reaching an outcome.

Those involved in the Vue restructuring tell us they have received numerous requests to provide additional info, but the company has no obligation to do so. The amount of outstanding CDS is small, was bought cheaply and could be argued it was a long shot from those that did. Plus there is plenty of pressure from the other side of the CDS trade placed on stakeholders not to engage.

There is the issue of delivering into an auction and having trades that can provide a reference price for CDS settlement. Vue’s bank debt is tightly held and it is difficult to see any holders wanting to participate in the auction.

One final comment, did the second lien (owned by OMERS) miss a trick? They got wiped out under the plan, but could have they participated as a deliverable? Let us know your thoughts.

Events management

Often the way around the CDS public/private issue is to go to publications such as ourselves and our reporting of private info — lawyers for funds and banks long ago deemed the effects of publication is to make the private information public — allowing those which are restricted to be cleansed and be able to trade. Yes, people do tell you stuff for other reasons than affection!

The determinations committee, however, does need two news sources to confirm.

Sometimes you may want to trigger the CDS before you restructure. But if you are a listed company with private debt instruments, how do you communicate private information to the market?

This happened way back in 2009/2010, with the Thomson SA (now Technicolor) restructuring. Thomson had entered into a waiver and forbearance agreement in August 2009 with senior noteholders on interest payments, but the question was whether the company failed to make the coupon payment on its private placement notes days earlier, or if this payment was waived and rolled over into the deal.

This brought into question whether a restructuring credit event, a failure to pay credit event or a bankruptcy credit event had occurred.

So why did this matter?

Some CDS holders had a preference for a certain trigger event, perhaps holding out for a later failure to pay default event or bankruptcy trigger, rather than calling a restructuring credit event.

So what to do?

At the time, I was used as a conduit by the company and its advisors, and over three days of intensive discussions over wording and attribution we had an agreed text for an article. There was a lot at stake — the business had €2.5bn of debt, and the outcome of the CDS determination could affect the route of the planned restructuring and recoveries.

The challenge was to make the article clear and definitive enough with strong enough attribution, without the company appearing to breach its confidentiality. They couldn’t go on the record.

My task was further complicated by having to face down my global editor in New York who wanted to include speculative comments from US hedge funds who wanted to see a different outcome for ‘balance’. This would confuse the reader and negate the piece’s intention, I successfully argued.

So, what happened?

My article was published and after a restructuring credit event was called, the CDS was paid out between 3.75 and 36.75 (depending on maturity). Those who waited for the bankruptcy credit event when it filed for Sauvegarde three months later got paid out at 22.25.

Some winners, and some losers. So was it worth all the personal stress?

It was certainly an experience. And the worst part? I had to give the story to S&P’s newswire LCD, 20 mins after publication, so that they could rewrite it to be the second public news source!

50 Sheds of Delay

Almost four months after Keter’s failed controversial A&E, there are no signs of an amended proposal. With an RCF maturity in July and over €1.2bn of term loans due in October, concerned lenders are set to hear pitches from financial advisors in the coming days, we revealed yesterday.

Its frustrated lenders rejected a coercive liability management exercise for the resin-based consumer goods business (including plastic sheds) last October.

But we hear that Keter released an optimistic turnaround budget on Thursday. This report could be setting the scene for a revised request, suggested one lender to us in response to our article.

While business performance had deteriorated in 2022, due to rising resin and energy prices, some of this should unwind in 2023, though reduced consumer discretionary spend might not allow a full recovery to its 2020 Covid-induced performance levels.

Leverage could rise to sixes and sevens in 2023, but its still below the double-digits seen in 2018/19. Sponsor BC Partners purchased the business in 2016 at a 9x multiple.

The previous A&E request had offered a partial paydown (less than 30%) at par (funded by new debt, including a second lien, and a €50m equity contribution from the sponsor) alongside a two-year extension and 100 bps margin uplift.

But if the deal didn’t meet 100% approval, key protections for dissenting lenders would be removed by 80% of lenders’ consent, by stripping covenants and security. Those left behind still would have a temporal seniority claim, but sit behind other lenders in a future restructuring.

The coercive element destroyed any of the positive momentum from getting anchor lenders onboard early and next time around, this will have to be dropped alongside the dollar component.

BC Partners will need to put in much more than €50m methinks (it is in one of their worst performing funds and they are loathe to lose their investment at this stage). While investors recognise the business cannot support huge bumps in margin, some form of bifurcation and/or PIK debt is likely.

But it could have be all so different for the sponsor.

A New York IPO was pulled in January 2022 due to market turbulence. Did they get too greedy?

A month later, it attempted to refinance its full capital structure, but investors demanded a higher premium than BC Partners was willing to meet, rumoured to be just a couple of points of OID from the E+425-450 bps and 99.5 OID marketed. Keter did, however, manage to follow up with a €100m add-on to its 2023 TLB at an undisclosed OID several weeks later.

You would have thought with all the above in mind, that BC Partners wouldn’t have tried the coercive route last October. The sponsor after all is struggling to raise new PE funds and the negative publicity from the pulled A&E can’t have helped its cause.

Luckily, in the current market, CLOs are very amenable to sensible A&E requests, and if there’s, say, a 25% cash repayment, a couple of years extension and a suitable triple digit commitment from the sponsor, there could be a runway to an exit in a couple of years.

The TLB is in the high 70s, attractive for distressed funds if the sponsor were to step aside.

In brief

Another name on our watchlist, Wittur, saw pitches from Financial Advisors over the past few days, with Houlihan Lokey in pole position secure the mandate. Longstanding company counsel Kirkland & Ellis is acting as legal advisor. A Chief Restructuring Officer has been hired, with EY to review operational and liquidity issues at the Germany-based elevator components manufacturer.

Yet more advisory action, this time at Atento, the call centre business (mostly in Latam) whose bonds continue to slide despite securing additional funds earlier this month and are now in the 20s. Alongside investment bank Houlihan Lokey, which assisted in the fundraising process, the company also tapped law firm Sidley Austin to advise it, revealed 9fin’s David Orbay-Graves.

More opportunistically, Atalian 2025 SUNs were pitched by financial advisors to push the French facilities management company to consider an alternative use of proceeds from the sale of its UK, Ireland and Asian operations, as revealed 9fin’s David Orbay-Graves. Currently, the proceeds will be used to only repay its €103m April 2023 RCF and, partially, its €625m 4% 2024 SUNs.

Ceconomy, as predicted by 9fin’s Emmet McNally, posted a positive set of Q1 23 earnings this week, with their 2026 SUNs rising as much as seven points in response to 77-mid. They were 64.5-mid at the time that Emmet’s positive report was released on 6 January. Chapeau.

As Technicolor Creative Studios advisors start to thrash out details of a deal with its creditors and shareholders to “recalibrate” its debt and equity structure, we have produced a Restructuring QuickTake for you to get up to speed.

There are more details known at Food Delivery Brands (Telepizza) with bondholders set to take control from KKR, providing a €31m interim facility to fund through the process. But haircuts are yet to be decided, and there is the thorny question of how it will be implemented, with ICO potentially to cram down. Our Restructuring QuickTake outlines the issues and is available here

What we have been reading (and drinking) this week

The 9fin distressed and restructuring team were pressing the flesh this week, with lots of meetings with bankers, advisors, lawyers and investors, generating lots of leads, and potential trend and feature pieces.

Most of our meetings for obvious reasons will remain private. But I can disclose an interesting chat with Stuart Brinkworth from Mayer Brown, their European Head of Leveraged Finance — I’m moderating a Distressed Private Credit Roundtable for Mayer Brown in the second half of March.

In a LinkedIn piece, Stuart says there has been a clear shift on how lenders are approaching distressed situations. Are we going to see the end of “amend and pretend”?

We also had a cracking bottle of Canadian Pinot Noir (or two) with a financial advisor in Mayfair this week, and after a few personality boosters, the topic switched to legal fees in restructurings. These continue to escalate and can easily make up 75% of the total restructuring fees. He’s on a crusade to limit the number of restructuring partners on calls to one, with his stop watch running — as many bill in 15 minute increments. I could suggest that with ever more complicated and looser docs, the lawyers are becoming more important, but I suspect it is pure legal cost inflation.

The BofA Credit Investor survey was an interesting read. Many are still fighting the rally, with moderate but not excessive longs, but 40% say that the rally is justified by better macro. Yet an equal amount think that the bull market has gotten ahead of itself. Global recession is no longer the main concern, policy error is highest, with an equity market correction, the next highest.

One for the restructuring legal nerds, an important win for German share pledge enforcement in insolvency — thanks to K&E for highlighting.

I particularly enjoyed Numis’ Mike Beadle’s three things about debt email this week. Like myself, Mike has seen a lot of strange things in Fixed Income in his long career. But neither of us are old enough to remember the oldest bond in the world — he points out that the podcast A Long Time In Finance talks about Dutch bond issued in 1648 and still paying 2.5% interest issued by Hoogheemraadschap Lekdijk Bovendams to finance a new dam near the lower Rhine. 1,000 Guilders of the bonds are held by Yale which in 2015 sent its curator to Amsterdam to collect 15 years of interest, being €136.20 — full story here

Mike also notes that Schuld in Dutch and German means both “debt and guilt” — so is the literal translation of Schuldscheine, Shiny Debt?

If the Schuldschein as expected get crammed down in Orpea, they may lose their lustre.

Finally, as is traditional for the Workout, a football update. I have just about calmed down about the VAR decision at Palace last weekend, when the officials drew the line from the wrong defender (the second last, not the last) — it’s not that difficult!

Surely, it wouldn’t have been difficult to award the goal at half-time when the mistake was recognised. Brighton took the apology well the next day, but the lost two points could cost us millions if we fail to qualify for Europe.