Winding Up — An august malaise

Will Macadam

23 August 2024•8 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.

We’re in the waning days of summer, but judging by the number of out-of-office messages (and their estimated response times) some of us still have another month off. Those of us not lucky enough to enjoy the summer sun in parts known and unknown can boast of another August on autopilot as nothing much really happened, right?

But if you ring up your friendly neighbourhood distressed reporters, advisors, or analysts — at least the ones more concerned with cultivating the next opportunity set than they are a tan — you’ll be told that it’s unseasonably busy. Be that because of existing mandates rumbling on without a definitive solution, the stochastic spread of Q2 earnings reports, or hush-hush new mandates.

We’ve all been working very hard this August… honestly.

There’s some data to suggest this is more than just bravado. Four of the nine corporate defaults that occurred globally in July happened in Europe, according to a report from S&P Global. The culprits include Swedish property group SBB, Ukrainian energy producer DTEK Renewables, Dutch lingerie business Hunkemöller, and French IT group (and notable sporting event sponsor) Atos SE.

American exceptionalism can be swept aside; Europe is the only region where defaults have exceeded levels seen last year, the report continues. Europe has recorded 26 defaults, an 86% increase compared to the 2023 year to date figure, and the highest figure since 2008. Cue the Beethoven. And for the non-European Europeans.

Source: S&P, Default, Transition, and Recovery: Distressed Exchanges Reached Their Highest Level Since 2009

S&P principally attributed the rise in defaults to distressed exchanges, with 45 distressed exchanges occurring from the start of the year to the end of July. That number is 18% higher than in the same period last year and the ratings agency blamed a “growing number of repeat defaulters” who made up close to one-third of year-to-date defaults.

The ratings agency clarified that it expected European speculative grade default rates to decline to about 3.75% by March 2025, down from 4.7% at the end of June.

That economic picture is somewhat collaborated by Fitch’s reporting. The European HY bond trailing-12-month default rate rose to 2.3% in June, up from 1.7% in May, according to a report published late last month. But the leverage loan default rate was declining, albeit from more elevated levels when compared to bonds, at 3.4% in June — down from 3.6% in May and 3.9% in April.

It’s safe to say the distressed exchange pipeline continues to look healthy. You need only look at the news flow on predictable situations, such as German commercial property landlord Demire, British utility giant Thames Water, and German chemical producer OQ Chemicals — as well as completely out of the blue situations like German agricultural giant BayWa’s sudden liquidity crisis — to be reassured that Europe’s default hot streak isn’t ending anytime soon.

Anyway, onto….

This week’s news

Ardagh — 9fin’s Emmet Mc Nally writes that the Irish packaging producer still has a ways to go before its capital structure is sustainable, this is despite its efforts to right-size its capital structure earlier this year. Read more here.

Arxada — 9fin’s Varun Gianchandani takes a look at the Swiss detergent and soap producer’s elevated leverage levels and possible routes for the company to rein in its balance sheet ahead of debt maturities in 2027. Read more here.

Branicks — paid down another €80m of its VIB-Vermögen bridge loan on 15 August, leaving €40m outstanding due December 2024. The company also announced preliminary H1 24 results, showing FFO of €19.4m and net rental income of €77.1m.

Codere — The gaming operator launched a consent solicitation on Friday (16 August) asking creditors to approve its Spanish Restructuring Plan, with a deadline set for 2 September. This is just a formality as it already has obtained support from 98% of the interim holders, more than 95% consent from NSSN holders, more than 84% from USD SSN holders, and more than 81% from Euro SSN holders. It expects to complete its restructuring transaction on or before 31 October.

Grifols — Though not a distressed situation, the Spanish producer of blood plasma products has turned a lot of heads this year, not necessarily for the right reasons. 9fin took a deeper look at a potential take-private deal led by the company’s founding family (the Grifols) and Canadian private equity giant Brookfield. Read more here.

iQera — the French debt purchaser and servicer has joined many of its peers in proceeding with a restructuring process. 9fin’s analysis dives deep into its business model, including its use of co-investors, before looking at asset coverage in a run-off scenario and potential solutions.

Oriflame — The Swedish beauty product direct seller has yet to engage with an ad hoc group of noteholders who banded together late last year, according to 9fin sources. Oriflame has yet, as of time of writing, to publish a date for its Q2 results. Read more here.

Peach Property Group — the company’s €300m 4.375% November 2025 SSNs jumped over four-and-a-half points on Thursday (22 August) on the back of a revelation by the company that it is planning to raise up to CHF 120m via an equity raise. The company will host an EGM on 27 September to vote on the proposal that involves a doubling of shares with new shares offered at CHF 5 each.

Petrofac — The oilfield services provider extended its forbearance agreement from 23 August till 20 September with the support of an ad hoc group of bondholders holding 47% of its bonds. Read our Petrofac Restructuring QuickTake here.

Pfleiderer — The German wood products producer saw ratings action from Fitch and S&P in response to its recently completed restructuring. S&P upgraded Pfleiderer’s rating from SD to CCC+ on the basis that liquidity will remain “sufficient” for the next 12 months, despite bearish expectations for free operating cash flow. Fitch upgraded the company from RD to CCC+ for similar reasons.

Pro-Gest — On 21 August, the paper and packaging manufacturer announced a new board of directors and the appointment of Angelo Rodolfi as chief restructuring officer to support the restructuring talks for the business. The Zago family will remain on the board and will be involved in repositioning the group, which includes deleveraging and non-core disposals.

Selecta — Following weak Q4 24 earnings out in early August, 9fin analyses the options available to the Swiss vending machine operator to address its €1.2bn 2026 maturity wall. Turnaround is slow so the group might struggle to refi. Equitising some of the debt to bring leverage under 4x and A&E the rest of the debt could buy time to improve performance.

Steward Health Care — New information came to light in a bankruptcy court this week setting up MPT and Steward’s FILO lenders for a fight over how much MPT will get for hospital sales. One possibility, due to an agreement MPT made with the FILO lenders while providing bridge financing to Steward this spring is that MPT would only get the max of its lease base when the real estate is sold to a new hospital buyer. Additionally, Steward told the court it put into motion the closure of two more hospitals in Ohio because of a lack of qualified bids. Bondholders are becoming concerned, but MPT won’t engage in any refi negotiations. Steward has admitted in court documents it received a subpoena from the US Department of Justice, which began investigating as far back as October 2023. 9fin was first to report on the US investigation, which includes alleged money laundering and bribery, and caused at least one bidder for Steward’s assets to back out.

Thames Water — — 9fin’s Sammy Cole unpicks some of the ESG issues central to the troubled water company’s distress. Read more here.

Varta — Over the weekend, the German car battery manufacturer said it agreed a restructuring with an ad hoc group of lenders, its majority shareholder and chairman Michael Tojner, and Porsche. The deal involves €100m of new money, and a 59% haircut and debt extension to the end of 2027. The group also plans to do an equity raise for €60m, which will be initially subscribed by Porsche and Tojner. A group of Schuldschein (SSD) holders are however opposed to the plan due to low recoveries, sources familiar told 9fin. The company is exploring the possibility of a joint proposal with the SSDs, a source close to the company told 9fin.