Winding Up — A(i)trocity exhibition
- Will Macadam
Winding Up is 9fin's weekly newsletter, incorporating summaries and commentary from our European distressed coverage for the past week. Find out more about what we do for distressed here.
What can we infer from a Bank of England survey of British business investment into AI technology? Trends that apply to the wider European market… or so we hope.
The UK’s central bank released a short piece of analysis last Friday, 11 October, pulled from an Autumn 2023 survey of its business contacts. Our dear friends at the Bank of England were primarily concerned with the affects of the widespread adoption of AI on the UK labour market.
Spoilers: they conclude that the timing and size of the disruption to the UK labour market is uncertain. The risk to jobs is widespread, but seems to be focused on professional services — which is unlikely to surprise anyone reading this.
While there are limitations to how relevant the data from the survey will be in the context of AI investments across Europe, it does provide a sense of which sectors are more likely to see disruption related to AI technology. We use this understanding for a preliminary analysis of the European high yield market.
About 30% of survey respondents said they had already made “new significant or transformative investments in AI over the last 12 months” (guess that would include us too), and more than 40% were planning on doing so over the next two to three years. The BoE analysis doesn’t explore the precise nature of those investments beyond this.
See chart below for responses split into different sectors:
Source: Bank of England
Business services (specifically finance, law and accountancy firms) seem to be the keenest adopters of AI technology, according to the central bank’s analysis. Consumer service businesses are slightly less enthusiastic, but a significant number of those surveyed had made or were planning investments in AI.
That gives us a pretty solid idea of which European businesses tracked by 9fin might face disruption due to the adoption of AI tech.
First, let’s see if there are any companies with distressed securities that fit the consumer services or business services bill. For bonds see this tracker and for loans see this tracker.
The lucky corporates on the bond side include: Intrum, DDM Group, Atento, Lowell, and Cision (which is also the issuer of two stressed/distressed loans). On the loan side we have: Ingenico, KronosNet, Tungsten Automation, Acacium Group, Foundever, and Claranet. Many of the names on this list are already in their own refinancing/restructuring negotiations (or completed them recently) and face macroeconomic factors beyond just AI disruption.
AI disruption in the customer experience sector, of which Foundever and KronosNet are members, has been a theme 9fin has covered before. Those two businesses, and others in the sector, face a war on two fronts. Their contracts with clients — some of which depend on human labour — could be swallowed up by generative AI companies, which in-turn is piling pressure on CX businesses to increase capex to develop their own AI technology.
While the BoE was unable to comment on the timing of AI disruption to the job market, it did give some sense of when businesses expect to see the greatest productivity gains from their investments. See chart below.
Source: Bank of England
Immediate gains, as noted by the BoE, arose from the automation of specific work tasks such as using a chatbot for customer service enquiries or from automation of business processes. But most companies see a longer two to three year tail to their investments. Part of the reason for this delay was due to the need to update IT systems to accommodate AI investments.
The BoE didn’t ask respondents about the size of the productivity gains they were expecting, so it’s difficult to gauge how impactful these investments could be for their relative businesses and how that might affect their competitiveness against their peers.
But what it does indicate is how long it might take the potential disruptive/market upending quality of AI to become a known factor.
Before we get to that point, it’s likely that businesses operating in the consumer and business services sector with maturities in the next few years are liable to face tougher refinancing negotiations as lenders look to price-in the risk of AI disruption.
Apropos of this possibility, here’s a list of all the bond names and loan names in relevant sectors with maturities up to the end of 2027 that may face some refinancing risk, or just harder refinancing terms.
Anyway, onto this week’s news…
This week’s news
Accell Group — Dutch bicycle manufacturer saw negative ratings action on Tuesday, 15 October. S&P downgraded the group to SD in-light of its recently launched restructuring transaction (see terms here), while Fitch maintained Accell’s long term issuer default rating at CCC- and downgraded Accell’s senior debt rating to C from CC.
Altice France — XpFibre’s recent refinancing and dividend recap will see its shareholders receive €1.6bn, 9fin understands. Following the deal, we assume €800m (due to Altice’s 50.01% ownership stake) of the €1.6bn dividend recap was upstreamed to the unrestricted XpFibre HoldCo. Find 9fin’s analysis here.
Arxada — Swiss chemicals manufacturer’s long-term corporate family rating of B3 was affirmed by Moody’s on Thursday, 17 October. The ratings agency expects that earnings will improve in 2025, but the business will remain highly levered at around 8.3x by the end of 2025 versus 9x for the 12 months to 31 December 2024.
BayWa — The German agriculture conglomerate has been trying to overcome the resistance of a small minority of creditors, according to 9fin sources. In the meantime, the company CEO has resigned, and his successor has not been appointed yet.
GHD GesundHeits — German home care provider was affirmed at a CCC+ rating by S&P Global on Tuesday, 15 October. The ratings agency expects that the business will be able to fund its operations through cash balances and free operating cash flow of €12m-€13m, but highlighted the refinancing risk around GHD’s €360m TLB due in August 2026.
Intrum — Swedish debt purchaser kicked off a prepackaged Chapter 11 solicitation on Friday, 18 October. This follows an earlier 9fin report from Monday, 14 October where sources familiar said that Intrum was in “advanced” preparations to file for Chapter 11. Creditors have until 13 November to submit their votes on the bankruptcy filing.
Lycra — The US-spandex maker is back in talks with its creditors about extending over $1bn debt maturities due next year with the chances of a refinancing looking slim, according to 9fin sources. The company is working with Linklaters and Houlihan Lokey. The dollar noteholders are working with Milbank and the euro noteholders have opted to go with Sullivan and Cromwell.
Northvolt — The Swedish electric battery manufacturer hired Kirkland & Ellis to explore in-court restructuring options in the US and Sweden. Find 9fin’s story here.
OHLA — The Spanish construction company’s bondholders are back in talks with the company after it missed a coupon payment on 15 September. The bondholders have agreed to delay a coupon which was due on 15 September to 31 October.
Oriflame — Swedish cosmetic group has also appointed advisors from Kirkland & Ellis, in addition to legal advisors from Ropes & Gray, as reported. 9fin also confirmed reports that Teneo had been appointed as advisors to Oriflame’s RCF lenders with sources.
Pro-Gest — The Italian paper business talks with creditors have stalled as it seems reluctant to engage at the negotiation table despite its impending December 2024 maturities. The group is yet to deliver its delayed FY 23 results and delayed new biz plan, and has to reshuffle the board yet again after the resignation of the chairman and an independent director this week.
R-Logitech — The ports operator is unable to issue a new €20m bond as well as extend its existing bonds to 2026 until certain legal disputes with bondholders are resolved, according to notices from the company and the bondholder’s legal advisor DMR Legal.
Thames Water — Funds holding Class B notes in the troubled water company’s whole business securitisation facility were ejected from an ad hoc group representing about half of Thames’ £18bn WBS debt. Those Class B creditors that were ejected from the group are now organising a new ad hoc group with advisors from Quinn Emanuel, as reported.
Varta — The German car battery manufacturer will submit its amended restructuring plan to the restructuring court in Stuttgart in the coming weeks and aim to implement the deal by year end, sources close to the situation told 9fin.
Victoria — Carpet marker appointed advisors from Lazard to assist the business in refinancing discussions with lenders. Longstanding advisors Latham & Watkins were appointed to advise the business back in July.
Headlines
18 October — BayWa tries to win minority resistance among creditors (9fin)
18 October — Intrum launches pre-pack Chapter 11 solicitation (9fin)
17 October — Thames Water WBS group splits as Bs ejected (9fin)
17 October — Pro-Gest struggles to jump-start creditor negotiations (9fin)
17 October — Lycra looks to stretch 2025 maturities (9fin)
17 October — Oriflame taps Kirkland for refi advice (9fin)
16 October — Drahi adds €800m to Altice war-chest with XpFibre recap (9fin)
15 October — Northvolt hires restructuring lawyers to consider in-court options (9fin)
15 October — R-Logitech restructuring hindered by ongoing legal disputes (9fin)
15 October — Varta to submit amended plan to StaRUG court (9fin)
14 October — OHLA bondholders back at negotiation table after missed coupon (9fin)
14 October — Victoria appoints UK financial advisor for refi discussions (9fin)
14 October — Navigating the triple-Cs — Cerba downgrade turns the spotlight on European CLOs (9fin)
14 October — Spanish pre-insolvency restructuring regime — Analysis (9fin)
14 October — Intrum inches closer to possible Chapter 11 filing (9fin)
Weekly Declines
Top bond movers (link to full screener on 9fin)
Top loan movers (link to full screener on 9fin)
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