Winding Up — Another hour upon the stage?


Market Wrap

Winding Up — Another hour upon the stage?

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  1. 9fin team
6 min read

Restructuring is expensive, time consuming and risky. Ideally, companies wouldn’t have to do it at all — but if they have to, then ideally only once.

Adler Group has become the latest example of an issuer whose attempts to restructure, albeit in this case to support a winding down of the business, haven’t quite bought the business the financial headroom it needed. The beleaguered German real estate group announced the details of its latest restructuring plan late last week.

Our coverage is cited below, so we’ll keep it brief. Adler’s new restructuring proposals aim to effectively equitise most of the group’s €3bn 2L SSNs (formerly its SUNs) as perpetual notes “with terms consistent with equity classification under IFRS” and granted voting shares with 75% of voting rights and none of the distribution rights, as reported. Only €700m of the 2L SSNs will be reinstated and maturities harmonised to January 2030.

Adler’s lenders will also provide a further €100m in new money to the business through its existing 1L new money facility, which pays a hefty 12.5% PIK.

Despite the equitisiation and day-one debt quantum reduction, Adler’s capital structure will grow at a fast rate post-close. All the group’s debt instruments have a substantial PIK component, the least some instruments will be paid is 6.25% PIK, while the group’s €429m (€400m original face amount) and €244m 1.5l notes will receive a whopping 14%, as Chris Haffenden noted in his write up.

Leverage, or rather the tremendous levels of debt certain issuers find themselves with, is a common complaint of the debt capital markets. Given the bumper year 9fin’s LevFin colleagues are witnessing, that will likely continue.

But some advisors are also critical of levels of leverage that distressed companies have post-reorganisation. Another Adler restructuring has been expected since before the New Year, largely owing to continued turbulence in the German residential market and the group’s onerous capital structure paired with the 2029 Bondholder group’s successful appeal of Adler’s UK restructuring plan.

The trouble Adler faces, and the trouble faced by other reorganised companies, inspired 9fin to ask a New York-based advisor why some deals aren’t going far enough. Their explanation was that, when creditors suggested deals, or drew redlines around how much of their money they were willing to burn to save a company, advisors acted pragmatically.

Questions of healthy levels of leverage, whether the deal is too reliant on PIKing some debt instruments, and the long-term sustainability of the capital structure become academic. A restructuring deal can be done. It may be flawed, and advisors may have reservations about how successful it will prove in the long-run, but ultimately several years of breathing room will have (hopefully) been created. That provides enough time for the business to recover or for its restructured lenders to trade out.

Forgive the butchered Shakespeare in the title. 9fin’s London editorial team went on a team outing to Shakespeare’s Globe to see the latest production of Richard III and so The Bard is still fresh in our minds. (We highly recommend — wickedly funny, an electric chemistry between Michelle Terry’s Richard of Gloucester and Helen Schlesinger’s Duke of Buckingham, but the production’s comparisons of Richard III to Donald Trump are slightly overdone.)

Before we continue with the news, honourable mentions for the week go to Freddie Doust and Dan Power’s analysis of UK retailer SuperDry’s UK restructuring plan. Freddie and Chris also took a look at Consort Healthcare’s UK restructuring plan and the possibility the UK’s National Healthcare Service might be crammed down.

This week’s news

Adler Group — The German real estate group unveiled the details of its latest restructuring proposal last Friday. Adler wants to reprofile its bond maturities in “in line with a revised business plan reflecting the current market outlook”. The bulk of the its 2L SSNs will be converted into perpetual notes “with terms consistent with equity classification under IFRS” and granted voting shares with 75% of voting rights and 0% of distribution rights.

Altice France (SFR) — The distressed telco’s Q1 24 results came with a surprise this week. It has contributed its shares in its valuable FibreCo, XpFibre, and some of its receivables against XpFibre to an unrestricted holding company, setting the structure up for a potential priming transaction. 9fin’s analysis suggests the new HoldCo could have commercial debt capacity between €1.05bn-€1.75bn, which owner Patrick Drahi could use alongside asset sale proceeds to achieve his 4.0x leverage goal.

Atos — The French software company has been mulling three rescue offers for the last month. A decision deadline set for today (Friday, 31 May 2024) but there has been no announcement from Atos at the time of this publication. While there are more differences than similarities between the offers, as detailed in our analysis here, the Creditors Group and OnePoint (1P) offers at first glance are better aligned with each other and with management’s strategy, which leaves the door open for bilateral negotiation. That said, Kretinsky is reportedly seizing on friction in the Creditors Group camp by revising his offer to garner their support. Both 1P and Kretinsky need support from existing creditors to provide new bank facilities. Atos has until 26 July (the end of the four-month regular Conciliation period, or 26 August hard deadline if it uses the maximum allowed one-month extension) to agree and lock up an offer.

Lowell GFKL — The UK-based debt purchaser and servicing firm announced another disposal of central European assets with a €136m sale on its Q1 24 earnings call on Thursday. Management said the sale would provide the business with “optionality” to reduce debt in upcoming refinancing negotiations. Lowell’s Q1 24 earnings were softer than the same period last year.

Medical Properties Trust — The US Department of Justice filed a limited objection to Stewart Health Care’s DIP, expressing concerns that Medical Properties Trust’s expedited milestones will not comply with the timing of the US government’s antitrust review of the sale of Stewardship Health to a UnitedHealthCare Group entity.


30-May - Lowell GFKL Lowell fills coffers with another sale as refi looms — Q1 24 Earnings (9fin)

30-May - The disclosure balance — an elegant framework in Superdry (9fin)

30-May - Bids due today for Barings called CLO containing reorg equity (9fin)

30-May - Altice France — XpFibre HoldCo debt capacity analysis (9fin)

29-May - Medical Properties Trust Steward Health — DOJ DIP objection portends long regulatory review amid cash burn (9fin)

29-May - Atos SE Atos mulls three rescue plans — how do they vary? (9fin)

29-May - We’ve heard of UK Restructuring Plans cramming down HMRC — but now the NHS? (9fin)

28-May - Altice France (SFR) Altice France sets up potential priming transaction (9fin)

28-May - Adler Group Adler Group outlines perpetual motion for latest restructuring (9fin)

Lateral Moves

Clifford Chance hired two new partners in Germany last week. Andreas Steiger and Patrick Schulz join the law firm’s Munich office; both lawyers were partners at Sidley Austin’s office in the city. Steiger co-led Sidley’s advice to packaging manufacturer Schur Flexibles Group on its 2022 restructuring; a situation Schulz also advised on.

Weekly Declines

Top bond movers (link to full screener)

Top loan movers (link to full screener)

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