Winding Up — European economic news augurs rise in restructurings

Alessia Argentieri

11 October 2024•5 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.

This week’s news has been dominated by daunting budget predictions and economic announcements from the largest European economies, impacting investor sentiment.

In the UK, as the first Labour government’s budget approaches on 30 October, rumours that chancellor Rachel Reeves will press ahead with plans to borrow billions of pounds have spread concerns among bondholders.

The country’s long-term borrowing costs have climbed sharply, pushing the spread between UK and German benchmark 10-year bond yields to 1.95 percentage points, the widest in more than a year.

“This increased debt issuance will affect yields in the corporate bond market as well, developing a vicious cycle of rising borrowing costs,” a market source told 9fin. “The pressure on companies in distress, with large debt stack and short maturities, could become extremely high.”

In France, Michel Barnier’s government unveiled its budget for 2025 on Thursday (10 October), aimed at tackling a spiraling fiscal deficit with €60bn worth of spending cuts and tax hikes on France's largest companies.

The country has grappled with fiscal pressures and political instability following a snap election in June, which left it with a hung parliament. Since then, its 10-year bond yield, historically close to German bunds, has risen by over 30 basis points and is currently aligned with Spain and increasingly close to Italy.

In the meantime, Germany is facing its first two-year recession since the early 2000s, affected by soaring inflation, high interest rates and increasing energy costs in the wake of Russia’s invasion of Ukraine.

On Wednesday (9 October), the German government downgraded its 2024 growth forecast for country’s economy, predicting that GDP would contract by 0.2% this year, down from an earlier forecast of 0.3% growth.

We’ve recently seen a flurry of German companies exploring restructuring plans, including agriculture conglomerate BayWa, battery manufacturer Varta, and real estate firm Accentro.

Further distressed opportunities are expected to arise in the coming quarters across the German automotive industry, which is facing a set of challenges, including supply-chain issues, rising energy costs and competition from Asian rivals, according to a market source.

Smaller European economies like Italy are also expected to see a reduction in growth and an increase in distressed opportunities.

Istat, the Italian national statistics bureau, published downward revisions of the country’s growth last week, lowering the country’s year-on-year GDP growth rates for the first and second quarters. Italy was put under a so-called Excessive Deficit Procedure by the EU this year after its 2023 budget deficit was 7.2% of its GDP, the highest in the euro zone.

The country has recorded a sharp increase in the default rate of companies, which reached 6.1% in 2024, according to a report recently published by EY. The default risk is particularly high for SMEs (7.3% rate), compared to large caps (3.2% rate).

The most affected sectors are construction, which continues to present the highest number of insolvency proceedings, followed by the industrial segment, which is impacted by a reduction in investment and a contraction in production volumes, according to the report. The retail and hospitality sectors have also performed poorly, affected by a worsening economic scenario and reduced consumers’ spending, and are likely to see new restructurings in the coming months.

Let’s now take a look at this week’s news…

This week’s news

Accell — The restructuring proposals for the Dutch bicycle manufacturer will see sponsor KKR and senior facilities lenders each stump up €100m in new money while haircutting slightly over 40% of its existing debt and removing its contentious whitelist, according to 9fin sources.

Atos — Holders of credit default swap protection on the French IT services provider have received a big payout, after a credit event auction settled contracts referencing the company. This was the first European credit event auction of the year — the last in Europe being for Casino Guichard-Perrachon in September 2023.

BayWa — The German agriculture conglomerate is working towards a a consensual agreement with its creditors, which will not include a haircut. The plan is likely to comprise the disposal of assets and might require the sale of the entire BayWa’s renewable energy arm, BayWa re, which has been performing poorly.

Northvolt — A subsidiary with 2-3bn SEK of debt for the Swedish electric vehicle battery maker filed an application for bankruptcy at the District Court of Stockholm after the Swedish Debt Authority after a group of bank lenders would not disburse billions of a green loan because the company didn’t meet green energy milestones. Northvolt is currently in a cash crunch to shore up capital but 9fin reported the company paid its taxes on time.

Peach Property Group — The company and its sponsor Ares Management have hired financial and legal advisors, according to 9fin sources, while refinancing negotiations step up ahead of the company’s 2025 maturities. Peach faces a maturity wall of almost €600m in 2025, mainly drawn from its €300m SUNs, as well as more than €200m in mortgage debt, and a €55m schuldschein due in March.

Samhällsbyggnadsbolaget (SBB) — The property management company announced terms for its spin-off residential IPO that would value the new listed company at NOK 8-9bn (€686m-€772m). The percentage of the company, Sveafastigheter, that will be taken public is 44% which is less than the 49% initially planned. Analyst said there is still concern the IPO proceeds will not be enough to manage its looming debt wall.

Zenith — The British car leasing company’s 2027 bondholders have appointed advisors to prepare for refinancing talks with the business and its sponsor Bridgepoint. Zenith has £1.15bn of securitisation facilities due in November 2025. In July, the company increased these facilities by £300m, including a £150m accordion, but decided against an extension due to unfavourable terms.