Winding Up — All co-oped up with no place to go

Will Macadam

26 July 2024•9 min read

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.

Co-operation agreements are fast emerging as a popular tool for creditors in complex distressed situations hoping to tilt the balance of power in their favour. Last week 9fin reported that more than half of Intrum’s 2025 bondholders had signed a co-operation agreement pitting themselves against the company’s restructuring proposals.

The Intrum 2025 co-op agreement is now the fourth such example on European shores. Completing the quartet is Altice, Ardagh, and iQera. Coincidentally three of the names (Altice, Ardagh, and Intrum) feature cross-currency capital structures and pulled in a large amount of investment from the US.

We’ve already opined on the topic a substantial amount in previous Winding Ups (and it really is just a shameless way to shoe horn in a pun), so we’ll try to keep our remarks brief. But suffice to say there’s good reason to believe that we will continue to see creditors deploy co-op agreements in contentious restructurings and stressed refinancings.

So, what does a co-op do? Simply put, it’s an agreement not to do certain things, such as splinter off and assist a company with its restructuring, or LME transaction. For more info, read our educational.

Opinions on the legality, enforceability, and efficacy of co-op agreements in the context of European law are split (some might suggest cynically). But so far these agreements seem to function, at least in theory, as intended. But they have yet to be tested in court.

Before it gets to that stage, there’s a problem with co-op agreements that hampers creditors: signing one can make your debt less liquid.

That’s because any creditor who has signed a co-op agreement can only trade it to another party that is also part of the co-op, or is willing to sign it for as long as the agreement is effective, which tends to be six months.

But as 9fin’s US distressed team highlighted last week in The Default Notice, being in the co-op can boost debt — the 40-point disparity between the co-op and non-co-op debt of insulation manufacturer Alkegen (formerly known as Unifrax) underlines this.

There is a balance to be struck with co-ops and usually it boils down to whether the co-op agreement is perceived as having rallied a critical mass of creditors to force a company into negotiations.

It should also be noted that liquidity won’t be a creditor’s first concern when they’re standing off against what they perceive as an aggressive restructuring or liability management exercise pushed by a company or its sponsor. Indeed, a creditor will have decided to ride out the distressed cycle of their investments well in advance (at least, we hope).

Signing a co-op could limit a creditor’s ability to exit from a troubled credit at a tactically opportune moment. Some of the situations mentioned at the head of this article, namely Altice and possibly Intrum, have very long tails to them and may not see any material progress on their respective restructuring and refinancing negotiations until next year. Intrum already has a deal on the table and will, in all likelihood, conclude negotiations at some point this year.

In the distressed world six months can make all the difference. While it may be hard to completely exit from a troubled credit, signing a co-op agreement may make it harder to realise value from improvements in the way liquid debt trades based on the flow on information around the company in-question.

That being said, the downsides of not organising against an aggressive restructuring or LME transaction are apparent. So giving companies or sponsors a free hand in the hopes of realising value in the short-term may be missing the wood for the trees.

Before we carry on with our regular order of business, we would like to take a minute to celebrate Varun Gianchandani’s (varun.gianchandani@9fin.com) first week at 9fin. Varun joins the distressed team after working as a summer associate for Houlihan Lokey last year, having previously worked at Alvarez & Marsal in Mumbai for nearly five years.

Varun has been a joy to work with so far and we look forward to publishing his insights and analysis of stressed and distressed European credits in the near future.

Anyway, onto….

This week’s news

Accell — The Dutch e-bike producer is in talks with a group of its creditors, who have been restricted from further trading its securities as of last week, 9fin sources say. This could be a sign that KKR, Accell’s sponsor, might be hesitant to support the troubled manufacturer absent some compromise with creditors. Read more here.

AMC Entertainment — The cinema operator has agreed a deal with two creditor groups to extend most of its debt maturities through 2029 through a drop down transaction featuring AMC’s brand and 175 theatres. The deal was agreed by holders of nearly two-thirds of AMC’s first lien term loan and nearly all of its second lien notes. Read more here.

Ardagh – The glass glass bottle maker (ARGID) and metal cans producer (AMP) separately reported results on 25 July. Apollo has provided a $300m secured term loan to AMP to shore up liquidity and fortify dividend capacity to help support its parent AIHS. Separately, ARGID results revealed that the Apollo Exchange Loan entered as part of a contentious deal struck in April remains unused. The ARGID outlook was downgraded, as expected, on the back of a softer than expected recovery in demand.

Atos — On Wednesday, 24 July, Atos launched accelerated safeguard proceedings, which are guided to complete on 15 October 2024. This prompted discussion of whether the filing constitutes a bankruptcy credit event, which could trigger the company’s CDS. After an anonymous party filed the general interest question, the EMEA Credit Derivatives Determinations Committee has agreed to rule on the CDS referencing for the French IT company.

Codere — The Spanish gambling group announced on Tuesday, 23 July, that its fourth restructuring had been homologated by the Spanish courts. Headline terms of the deal include a €1.2bn write off of bond debt, the issuance of €128m first priority notes and a €60m liquidity injection. Codere expects to complete its restructuring by Q3 24.

Demire — The distressed German real estate operator confirmed on Monday, 22 July, it was unable to reach an agreement with lender DZ HYP to extend or refinance an €82m loan taken out by four of the group’s subsidiaries in its “Limes” portfolio. Demire announced that it would file an insolvency application for the four companies which hold assets in Essen, Kassel, Aschheim, and Cologne.

Hunkemoller — Bondholders primed by the Dutch lingerie manufacturer’s uptiering transaction with Redwood have hired Pallas Partners as they prepare to bring a legal challenge against the transaction, sources told 9fin. Read more here.

Hurtigruten — Despite completing a debt restructuring in February 2024, the Norwegian cruise liner is back in focus. The company had a slow start to the year and according to another newswire it may struggle to refinance its February 2025 bonds by the 31 August deadline. Sponsor TDR is at risk of losing control as this would allow the lenders to take a 51% stake in the company.

Medical Properties Trust — The REIT sold eight buildings in Arizona for an estimated paper profit of $100m back to Dignity Health which is owned by Commonspirit Health. The company would not expand on how much cash it generated from the sale leaving analysts estimating that the deal was done through a note. The deal implies a cap rate of less than 7.5%. Additionally, Steward Health Care received a bid for one of its Southern California hospitals for only $500k from AHS South but without negotiating terms to lower the base rate of the lease for MPT. Independent research firm Hedgeye estimates that MPT gave the new buyers a loan to cover the current lease price which means MPT will not have to take an impairment on the deal.

Petrofac — The deadline on a forbearance agreement between the UK-listed energy services firm and an ad hoc group of noteholders representing ~47% of its outstanding $600m SSNs due 2026 passed on Thursday, 25 July. Petrofac has yet to release an announcement either confirming it has secured new guarantee lines — the main sticking point in its restructuring — or that the AHG, have once again, agreed to extend the forbearance agreement. 9fin approached the company for comment.

Pfleiderer — Moody’s downgraded the German wood products manufacturer’s corporate family ranking from B3 to Caa1 after the group announced an amend and extend deal last week. The ratings agency said the maturity extension on Pfleiderer’s notes will be viewed as a distressed exchange.

Steward — The bankrupt hospital operator's CEO Ralph de la Torre was issued a subpoena to appear before the US Senates HELP committee over the company’s actions that led it to bankruptcy. De la Torre had been asked to voluntarily testify earlier this year but was a no-show. This is first time the congressional committee ever issued a subpoena. The Boston DOJ is currently investigating the company and its CEO for financial crimes.

Thames Water — On 24 July, Moody’s downgraded Thames Water Utilities (the regulated OpCo) long-term corporate family to from Baa3 putting the troubled utilities company in breach of its licence conditions, a move widely anticipated across the market. The rationale was its weakening liquidity and a forecasted breach of financial ratios in March 2025. The ball is now in Ofwat’s court.

Stonegate — The UK pub group is set to get £200m equity investment from its sponsor TDR Capital, as reported by Bloomberg. 1L bondholders could have the notes extended for a higher coupon and 2L holders could have some of their notes paid down with the rest exchanged into new notes. The HoldCo PIK could turn into an equity-like investment. 9fin analysis finds this is to protect the interest of secured noteholders, whose extended maturity would otherwise make them temporally subordinated by structurally junior debt.

Headlines

25 July — Ardagh cuts guidance amid creditor talks – Q2 24 earnings review (9fin)

25 July — Constellation back on track in Q4 24? (9fin)

25 July — Voyage Care on the mend — FY 24 earnings review (9fin)

24 July — Atos CDS question accepted as credit event precedents resurface (9fin)

24 July — Hunkemoller primed bondholders plan to litigate (9fin)

24 July — Stonegate Pubs — TDR pours equity to keep the pints flowing (9fin)

24 July — Thames Water loses investment grade rating (9fin)

24 July — Atos accelerated safeguard prompts CDS trigger question to DC (9fin)

22 July — AMC launches LME struck with 1L, 2L groups — aims to loop in remaining 1Ls with fee incentives (9fin)

22 July — KKR changes gear on Accell by initiating talks with lenders (9fin)

19 July — MPT used same private investigation firm as Steward (9fin)

Lateral moves

Paul Weiss was long rumoured to be on the hunt for a restructuring partner in London. On Tuesday, 23 July, the firm announced it had poached Akin Gump partner Liz Osbourne to head its European Restructuring group.