Market Wrap

Friday Workout — Stakeholder Analysis; See you in Courts

Chris Haffenden's avatar
  1. Chris Haffenden
17 min read

A busy week for the distressed team at 9fin Towers, not just preparing for our inaugural webinar for Orpea on Thursday — the replay for subs is here— but also for updates on live restructuring situations. Thankfully, the amount of primary care needed and level of activity in A&E was light, meaning that 9fin could maintain its high levels of service. But this is set to change markedly next week, with our LevFin team aware of a raft of primary operations and A&E requests to come.

As outlined last week, the rip in markets so far this year is likely to bring forward a number of HY and LevLoan deals tentatively in pre-marketing. Thursday’s US CPI data release could have royally killed the market, but for the third month in a row, the headlines were favourable, leaving room to spare for further gains.

But while a number of postponed deals and likely better name refis will emerge, this is unlikely to benefit names such as Finastra being prepped for a trip to A&E (our latest piece is here). Suddenly software as a service isn’t as solid an investment as previously thought, apart from those providing essential services such as 9fin!

For those with US content access, I recommend this SaaSy article from our US team.

Our internal list of potential liability management candidates — gleaned from our screeners and source conversations — is growing daily. Hopefully we can share more of these names soon, and give some more insight on how we screen.

But in the meantime, it’s back to our core coverage.

It’s finally getting to crunch time for a number of high-profile restructuring sits, most notably Orpea and Adler Group, but also for Matalan, Telepizza and maybe Ideal Standard.

After months of wrangling and analysis, the focus shifts to implementation and deal execution.

We also found time to took a closer look at Accentro’s A&E, which at first glance wasn’t particularly generous in terms of pricing. But on further inspection it does appear to be a decent outcome for bondholders and is a softish restructuring, not an amendment.

We also found time to took a closer look at Accentro’s A&E, which at first glance wasn’t particularly generous in terms of pricing. But on further inspection it does appear to be a decent outcome for bondholders and is a softish restructuring, not an amendment.

And time to reflect on the passing of EA Partners bonds, which provided plenty of column inches in the past for yours truly, and my colleagues David Orbay-Graves and Bianca Boorer.

Stakeholder analysis

In most restructuring cases, investors will often spend most time on where value breaks, undertake extensive sensitivity analysis on the biz plan and its hockey stick of revenue recovery.

They may also pay some attention to the jurisdiction in their analysis — no, before you ask, European jurisdictions are not just like Chapter 11, and now meant to be harmonised by new EU legislation — there are still a lot of pitfalls, just ask your clever lawyers billing you at £1,500 per hour.

But the importance of stakeholder analysis is too often neglected, especially for high profile cases, which could be too big to fail (or can often be too big to bail). It is probably the most difficult skill set, and not a natural one for credit analysts, who often have to gain it via bitter experience.

We were reminded of the importance of stakeholder analysis in putting together materials for our Orpea webinar (the replay is available here).

To recap, there are several disparate Orpea stakeholders (including a few more that we only discovered this week) to deal with, all with wildly different motivations and expectations. If that wasn’t bad enough, there is a political angle too — not only is it in France with tens of thousands of employees — but the French state wants to be a long-term investor and have majority control.

This should already be ringing alarm bells for grey-haired distressed investors (and journalists).

I remember state interference in earlier versions of the Eurotunnel restructuring, distressed funds forced to make visits to the ministry to make further concessions get their loan-to-owns done, and for larger sits just how politically influenced judges can be, resulting in perverse outcomes.

In Italy, it can be even worse. The government has no qualms about changing the law to suit individual and high profile restructurings, having done so for Parmalat and Alitalia (first restructuring).

But I digress, lets get back to our analysis of Orpea stakeholders (shout out here to 9fin’s Bianca Boorer for researching most of the below). To summarise, we have:

The G6 banks. French relationship lenders which provided €3.2bn of new senior secured facilities under the first conciliation process. Under the plan, they stay intact, albeit with lower margins and removal of early prepayments and extended out by five years to 2028. All that adds up to some degree of impairment, which could be useful at a later date.

Then we have an unsecured creditor group, aka “The Guns”, which hold around €1.8bn of the €3.8bn being fully equitised — a mix of Eurobonds, converts, private placements and some Schuldschein. Includes Boussard & Gavaudan, Anchorage, Carmignac and Eiffel Investment. To join their gang, you must be willing to provide new money — remember Orpea needs €1.2bn-€1.5bn via a capital increase (plus €600m of secured debt). But they are currently well short.

The Guns are not the only potential providers of equity. CDC, the French state fund, is keen to provide the bulk of the funds (but not all), but only if it has majority control. It also wants to keep group margins nearer 20%, rather than the ‘excessive margins’ envisaged under Orpea’s ambitious turnaround plan. This could dent future recoveries for other stakeholders.

It would make sense for the Guns and CDC to team-up, but not only are there huge cultural differences between the two, but they are so far apart on valuation.

t this point it is worth noting that other unsecured creditors won’t be happy with the potential equity splits — if French press reports are correct, CDC wants to put in around €750m for majority control — a huge benefit for the new money, given the unsecureds are exchanging €3.8bn of their debt claims for less than 50% of the equity!

With Schuldschein (SSD) investors making up €1.5bn of the unsecured debt, their approval is needed for a consensual deal. But a group of holders representing around €500m of the SSD, made up of 10 Chinese and German Banks (and expected to grow to nearer €1bn) are fighting against their equitisation. Firstly, they claim that their debt cannot be comprised by the French process as they are German-law governed — their promissory notes are so special after all — and secondly, many of their holders can’t take equity, so they cannot agree.

The SSD group are putting together a counterproposal and preparing litigation in Germany in France if they are unsuccessful with their counter.

But Mediobanca, another SSD holder but not part of the bigger group, jumped the litigation gun.

The Italian bank went to a Paris Court in mid-December, seeking to nullify the second conciliation. It is also seeking to have a financial expert appointed to provide information to back its case for suing the company. A judgment is expected on 20 January. If successful, it could put the court process back several months and hamper not only the fund raising, but also the ability of Orpea to use Sauvegarde in February to impose their plan on dissenting creditors.

And if that was not all, Mediobanca owns a 66% stake in financial advisory firm Messier Maris & Associés (MMA), notes Bianca in her piece of earlier this week. MMA is advising Concert’o, two minority shareholders vehemently opposed to its restructuring plan. The activist shareholders claim that “shareholders and unsecured creditors have been chosen to bear the burden of Orpea’s deleveraging plan through massive dilution and priority given to secured bank creditors.”

According to its website, Concert'o comprises family group Mat Immo Beaune and Nextstone, owning 5% of Orpea’s shares. Mat Immo Beaune was the shareholder of the Les Opalines group, which specialised in retirement homes and services for the elderly. The Nextstone group specialises in private investment and real estate in France. On 6 December, they released a counter proposal, which entails €2bn of new money, and unsecured debt convertible in shares callable in cash (ORAR) which would see financial debt fall from €7.2bn to €4.9bn.

Listed above are the main stakeholders, but we are aware of other SSD groups, convert holders and other unsecured holders, all with their own representation. For once, I pity the formidable Helene Bourbouloux, the conciliator, who has to corral all these creditor groups together.

So, if you were attracted by buying into Orpea’s unsecured debt in the mid 20s, or the equity which has a market cap of just €467m (was over €5bn a year ago), it is worth assessing how a deal can be agreed with all of the above, and who are going to be likely winners and losers.

I would also caution that I’ve only touched the surface here, and for the sake of excess wordage, have left out the context, financial data, turnaround plan details, our thoughts on expected asset coverage and potential equity value. Our 40 min webinar touches on most of these.

See you in Courts

With consensus agreement unlikely, the fallback plan for Orpea is to use the revised Sauvegarde process to cram-down dissenting creditors, which includes shareholders (for the first time).

According to a Wilkie Farr primer “One or more dissenting classes can be crammed down if the plan has been approved by (a) a majority of classes (of which one must be a class senior to ordinary unsecured creditors), or (b) at least one class which is “in the money”… and secondly, the plan must comply with an “absolute priority rule.”

This would require Orpea’s senior secureds to vote in favour and for the court to be convinced that the requisite conditions are satisfied. But the ability to cram down so is relatively new, with changes to the French insolvency process only coming into effect last June.

We expect the Schuldschein to contest class composition. Classes are typically lumped into three — the senior secured, unsecured creditors, and equity holders. These classes are likely to be set by Madame Helene, with tests for her to satisfy including sufficient common interest, and compliance with inter-creditor and subordination agreements.

The SSD are likely to argue that they cannot be compromised by a French process. Until recently, Schuldschein led a charmed life, their unique structure and lack of collective action clauses making it extremely difficult to be restructured. But recent law changes should change that.

If the SSDs try their luck via the German courts, the concept of Centre of Main Interest (COMI) and the extent of the French moratorium and jurisdictional reach of any ruling will be tested. Will they be able to have first mover advantage or be hamstrung by European harmonisation?

There is a lot at stake. Some market participants have told 9fin that an unfavourable outcome could kill the Schuldschein market, and if not entirely, at least for French borrowers.

And lastly, other stakeholders may try and challenge Orpea’s assumptions and push the court to consider their alternative plans. And don’t forget, we are presupposing that Mediobanca isn’t successful in its conciliation challenge, a result which could set back the whole process for months.

Adler chooses the UK over Germany

After waiting for ages for a high profile challenge to new legal processes, like buses, it seems that two are likely to arrive in short succession.

As reported, in December, Adler Group 2029 holders blocked a series of amendments via a series of consent solicitations. The 2029 Ad Hoc Group says the company’s plan favours shorter-dated holders, most notably the 2024 notes whose status was elevated to second ranking (the other SUNs are third) to smooth the approval of €937.5m of funding from a select noteholder group to repay Adler Group subsidiary Adler Real Estate’s 2023 and 2024 maturities.

But this week, Adler finally choose the alternative implementation process to facilitate its new funding plan. It said that a sufficient majority of noteholders (78% nominal of notes and 82% by votes cast) had agreed to the implementation route.

It said it will proceed via an English (sic) Restructuring Plan, rather than Germany’s Starug, which we understand was also under consideration.

Adler has “(i) substituted a wholly-owned English subsidiary, AGPS BondCo PLC as principal debtor in respect of all obligations under the Notes; and (ii) issued an irrevocable and unconditional guarantee in favour of the noteholders..”

This provides a route to the UK (has elements of COMI shift language first used by K&E for German auto-service group ATU), and we assume it chose the UK Restructuring Plan rather than a Scheme given the UK Plan’s ability to cram down dissenting shareholders.

I suspect Adler will try and lump the 2029s with the other Adler SUNs into one class to dilute their vote and push through the Plan, but if the court puts them into a separate class, they may need to cram down.

As we flagged, this could raise the issues of temporal seniority and equal treatment, which were raised in Veon’s UK Scheme convening hearing. Tony Zacaroli’s written reasoning is still unavailable, but we would expect it to be, by the time Adler’s UK Plan convenes.

Accentro Assent; Reviving Vivion

With German Real Estate companies still clouded by accusations of related party transactions, opaque and convoluted ownership structures, and doubts over valuations, refinancing upcoming maturities is highly problematic.

Accentro was first in the maturity queue (Aggregate’s VIC Properties converts are next) with €250m of bonds due in February 2023. Sources close to the deal had told us in September that an A&E with some cash payment and further funds from asset sales should suffice.

But we were doubtful. If it were that simple why where the bonds at 50?

After all, there were concerns over the Azeri ownership and their alleged connections to former owner Adler, or as short-seller Viceroy suggests, to our old friend Cevdet Caner, who has come in from the cold at Aggregate Holdings.

This week, bondholders agreed to an A&E, which extends the bonds by three years for a 2% coupon uplift.

Not great on price terms? But wait, there’s more, a whole lot more.

Bondholders gain a collateral security package (covering 73% of NAV) for both series of notes, plus guarantees for partial redemptions (€25m to be repaid on transaction close) based on future asset sales (€65m by Dec 23, €130m by Dec 24 and €150m by Dec 25). Other bondholder-friendly features include a new double LuxCo structure, debt incurrence covenants and the appointment of a bondholder representative.

And yet that’s not all, as per slide below:

Plus, new investment property acquisitions are not allowed until 80% of the SUNs are repaid.

It’s unlikely that Accentro’s bonds will immediately ascend to par on the exchange, but the bondholders are getting a whole lot more for their assent. An almost 15 point rise, since the release of the plan on 16 December, is more than fair in our eyes.

Also on the ascent are Vivion’s bonds which staged a revival after the company released its rebuttal to Muddy Waters short-seller report to trade in the high 70s. But it also faces short-term bond maturities in August 2024, and shorter loan maturities sitting in its UK Hotel Ribbon CMBS.

As my colleague David Orbay-Graves reported this week:

“before looking at the more idiosyncratic issues raised by Muddy Waters… it’s worth summarising Vivion’s situation from a more straightforward credit perspective. As we noted previously, bondholders may ultimately be unconcerned by the shareholder transactions if their investment is covered. Nonetheless, the fact the bonds continue to trade at stressed levels suggests investor concern has yet to be fully alleviated.”

In his piece, David looks into whether the SUNs are impaired at current levels.

At the fair values reported by Vivion at end-H1 22, the bonds are €773m over-covered by the portfolios (likely sufficient to also cover any value flowing to potential priority creditors that might, for example, include the €143m in long-term leases or Vivion’s €275m deferred tax liabilities), he reports.

David adds that a haircut of 28% to the values of the UK and German portfolios results in a valuation attributable to the unsecured bondholders of €1,475m (i.e. 100% coverage of the unsecured bonds) but, as noted above, this neither accounts for any priority claims that would reduce the value flowing to bondholders, nor for Vivion’s €722m in cash at end-H1 22.

But he cautions:

that the issue of real estate valuation is too subjective, and too far beyond the scope of our expertise, for us to hazard a guess as to the fairness of Vivion’s portfolio valuations or the quantum of any revaluation needed: needless to say, Muddy Waters argues the valuations are substantially inflated and Vivion denies this.”

Owen Sanderson notes that after months of saying it was working on a refi, Vivion has finally refinanced the UK hotel portfolio backing Ribbon Finance 2018, announcing on Thursday that the CMBS would be redeemed this January, ahead of the April 2023 loan maturity.

Watch out for David’s next piece on Vivion which focuses on some of the unanswered questions and discrepancies from the Muddy Waters report and its rebuttal.


This week, finally saw the cancellation of the two ($1.2bn notional) EA Partners bonds, backed by loans owed by Etihad to pay for minority stakes in various airlines, most notably Alitalia, Air Berlin, and Jet Airways India.

Since 2017, holders and traders alike were whipsawed by savage price moves after a series of airline insolvencies, with hopes raised and dashed many times, on varying interpretations of the opaque loan agreements, and/or if the Abu Dhabi government (100% owner of Etihad) would succumb to moral hazard and be forced to step in to repay the bonds.

I doubt that many investors and traders will mourn its passing, but I suspect that a number of financial journalists will.

It had all the elements we look for, a novel and complex structure, conflicting information, and a series of high profile defaults for the underlying to cover. Please correct me if I’m wrong, but I think that all of the underlying obligations eventually defaulted, as Air Berlin, Alitalia, Air Serbia, Air Seychelles and Jet Airways plunged into insolvency.

We also had FT favourite Lars Windhorstin the mix, as his firm arranged the deals in 2015 and 2016 alongside GS and ADS Securities.

The holy grail for us in 2017 was to find a copy of the debt assumption agreement, a private document between Alitalia and Etihad Investment Holding. It was critical to see if holders had any recourse to Etihad, or would be stuck in the mix with other Alitalia creditors in its messy bankruptcy.

In a May 2017 RNS, the EA Partners issuer said:

“Etihad IHC had informed the Issuer that pursuant to the Debt Assumption Agreement, Etihad IHC had agreed to assume Alitalia's obligation to pay the principal amount of, but not interest under, the Alitalia Notes on their maturity date without any release of Alitalia from its obligations thereunder.”

Fitch’s interpretation at the time (we assumed that the agency had seen the agreement) was that Etihad would pay the principal portion of the notes (20% of the total) relating to Alitalia. This caused the notes to surge. But this never happened, with the issuer trying and failing numerous times to get a copy of the debt assumption agreement over the next three years.

But as a RNS notice in July 2020 outlined, there was no recourse to Etihad.

“Moreover, there is an express provision in the Debt Assumption Agreement that the Issuer, as subscriber, is not entitled to exercise any rights, powers and claims under the subscription agreement (as defined in the Debt Assumption Agreement) and the Notes against Etihad IHC, as the assignee. The Issuer has obtained advice from its Italian counsel that the case law of the Italian Courts confirms that, based on this type of debt assumption agreement, creditors cannot raise any claim vis-à-vis the assignee, but only against the original debtor (Alitalia). Boom!

In July 2022, EA Partners II released details of the sale proceeds of its Air Berlin and Alitalia claims ($99.5m each). Just $2.67m of funds (out of a $199m claim) were allocated to the notes.

I joked on FinTwit this week, that a notice should be posted in The Times deaths column to mark its passing.

There is precedent! Over 25 years ago, myself and a few Eurobond traders placed a death notice for a World Bank Eurobond issue. On Swiss retail buy lists, market makers couldn’t cover shorts — I had failed trades for a year — despite it trading 350 bps through the government bond curve!

Rest in peace EAP, you are gone, but not forgotten.

What we are reading this week

More indulgence on my past reporting favourites this week. But humour me, I think that recent events at Eskom will pique your interest.

The South African energy utility is suffering from a going concern opinion, has just failed to get approval for its 33% price increase from the regulator, and is unable to purchase diesel to produce alternative power as its ageing (and troublesome new) coal plants fail. This causes widespread outages, which this week were the worst on record. There was also news of widespread looting of its coal and diesel stocks by organised crime.

Eskom or Eskbomb, as I would like to call it (revised lyrics to Tom Jones’ Sex Bomb available on request) has suffered from corruption, nepotism and political interference for years. The latest casualty was CEO Andre de Ruyter, recently forced out by politicians unable to grasp the nettle.

But it could have been worse for Andre, there was an attempt on his life in December, with cyanide being put in his coffee. The FT’s Joseph Cotterill and David Pilling summarise well.

Some fantastic content from Owen Sanderson this week on banks seeking to offload their loan risk to free up capital. It’s also happening on the other side, with the emergence of CFOs — not chief financial officers, but collateralised fund obligations, the tranching of Private Equity fund stakes into bonds and their selling on to institutional investors.

But as it were ever so, these unsuitable products inevitably end up with retail investors. Hat tip for Mike Beadle from Numis for sharing this YouTube video —  a cuddly animation where Azalea (part of the Singapore SWF) is trying to push PE exposures via bonds at a ‘lofty’ 6% (WTF).

This weekend I will be catching up with Kate Stephenson’s podcast comparing UK Restructuring Plans to Chapter 11 for INSOL.

Bloomberg questions whether all Malaysian oil is Malaysian:

I was amazed to hear that the UK space industry is worth around £16bn. I was less surprised by the failure of the Virgin Orbit satellite launch this week. HIGNFY sums it up perfectly.

(I’m sure there is a joke in there somewhere about Brexit and intelligent life forms).

While writing the Workout, I was listening to a fantastic interview by Nick Robinson on the Radio 4 Today programme with his hero Eric Cantona. While waiting for it to upload to iPlayer, I would suggest you read this. For Cantona, football is an art form.

And if you had any doubts about Leo’s deity:

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