Winding Up — Playing pretend

Bianca Boorer
+Denitsa Stoyanova, CFA
+ 3 more

21 June 2024•7 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.

Cast your mind back two years, just as inflation soared and interest rates began their ascent. Expectations were that we could be seeing the makings of a real default cycle, where restructurings would have to materially delever companies and lenders would have to stomach painful haircuts.

Well, with the wealth of two-years’ experience, that really wasn’t the case — was it? We’re still firmly in the era of amend and extend.

Case in point, Intrum Justitia. The distressed debt purchaser unveiled a refinancing proposal it had negotiated, and agreed in principle, with most of the company’s longer-dated bonds (2025-2028).

So what does the deal do? It’s effectively a big A&E — in-line with what sources told us months ago.

Now, calling it a big A&E is a bit reductive. The deal does include some deleveraging; most of Intrum’s debt maturing in 2024, and some in 2025, would be paid off in-full. Bondholders have to swallow a 10% haircut to their notes, which will will be reinstated into several indentures of exchange notes with maturities ranging from 2027 to 2030.

9fin estimates that leverage would drop by about 0.4x, from 5x pre-transaction to 4.6x, when applying the expected SEK 8.2bn (€732m) of asset sale proceeds, and using Intrum’s FY 24 estimated EBITDA of SEK 9.7bn. See our cap table:

There are plenty of carrots to the proposal. The exchange notes are cash pay, which certainly says something about the market and its fondness for PIK debt if this has become an attractive feature of a refinancing deal. The notes also have an enhanced 2L ranking behind a new money facility and tighter baskets and documentation with participating bondholders also getting a pro-rata slice of 10% of the company’s common equity in consideration for the 10% discount versus face value.

Intrum’s proposal also features a €400m new money facility, which will rank 1.5L and pay 8% cash interest. The facility is ostensibly for discounted buybacks of the exchange notes, but whether the company would use such an expensive piece of debt to buy-back notes is uncertain.

But the proposals, published at the start of trading yesterday (20 June), have certainly had the intended effect on the market. Take the company’s SEK 400m 11.875% SUNs due July 2025, trading over the last day has been positively parabolic (see chart below).

Yes, dear reader, that is a 12-point gain. The SUNs traded all the way from 81.1-mid to the lofty heights of 93.3-mid. A brief reminder that these notes traded at around 61-mid in March. Any savvy investors who snapped them up at the first signs of distress will be having a very good weekend — par holders may also be breathing a sigh of relief (or bragging to colleagues about their long-term investment strategies).

The deal is backed by a group of lenders that represents slightly more than half of Intrum’s total debt, according to sources familiar. There have been rumblings from other creditors that they might try to fight the deal with a cooperation agreement, but it remains to be seen whether they could organise a group large enough to have a blocking stake. You can read more about it here.

At the moment the proposal has only been agreed in principle, but a source familiar said Intrum and the longer-dated creditors would look to sign lock-up agreements in a “matter of days”. We expect to be writing more on this name next week.

Anyway, onto more of this week’s news…

This week’s news

Adler — The distressed German real estate group announced on Tuesday that more than 90% of its lenders had signed up to its second restructuring deal. Alder said it would delay the progress of its UK restructuring plan proceedings pending the implementation of its proposed amendments via consent solicitations.

Altice USA — Akin Gump and PJT Partners held a call on Monday with the aim of trying to get a critical mass of lenders onto another massive co-operation agreement, according to 9fin sources. Read more here.

Codere — The Spanish and Latin American gaming operator announced a new restructuring deal last week. The deal has been three months in the making, and is believed to be the company’s fourth restructuring. Principle terms include a €1.2bn bond debt write off, €60m in new liquidity, and the issuance of €128m first priority notes. Read more here.

Intrum — Certain creditors of the Swedish debt collector were restricted from trading the company’s bond last Friday, after the company gave them access to private information. Intrum announced its refinancing proposal on Thursday, which we’ve already detailed above. A group of Intrum Justita bondholders are trying to fight the company’s recent refinancing proposal with talks over a cooperation agreement, according to 9fin sources. Read more here.

Kloeckner Pentaplast — 9fin’s Freddie Doust, Emmet Mc Nally and Dan Power took stock of the German packing manufacture’s position and possible paths to refinance its debt. The group faces a €2bn maturity wall in 2026. Read more here.

Lowell — The UK-based debt purchaser is working with Goldman Sachs to explore debt refinancing options, including a potential amend and extend deal, according to 9fin sources. Read more here.

Peach Property — The German residential property landlord has been on our watchlist for sometime and has proved itself something of an outlier in the German RE space by avoiding a material restructuring or stressed exchange. But its options seem to be evaporating as it faces a €205m liquidity gap to cover debt maturing next year. 9fin’s Emmet Mc Nally takes us through the nuts and bolts of the stressed real estate group here.

Petrofac — The distressed energy service firm defaulted on its SSNs after failing to convince its lenders to extend the grace period on a missed interest payment. Petrofac has already entered a forbearance agreement with an ad hoc group of creditors representing 41% of its outstanding notes, preventing the group from taking enforcement action until 30 June. To initiate enforcement action, creditors need a group larger than 25% of the outstanding notes, but a source familiar said a group had yet to organise and that it was unclear if such action would be in creditors’ interests. Read more here.

Pro-Gest — Italian paper and cardboard manufacturer announced it was negotiating with creditors to finalise a refinancing plan. Pro-Gest has opted not to pay a €4m interest coupon payment due on 15 June for its €250m 3.25% SUNs due 2024 to preserve the group’s liquidity position. The company said it would give updates in due course. Pro-Gest’s SUNs have a 30-day grace period for the company to correct an event of default, according to the docs.

The Very Group — 9fin’s Hazik Siddiqui took us through four of the key talking points about the online retailer and consumer credit provider. The Very Group faces about €755m of maturities in 2026. Read more here.

Victoria plc — British carpets manufacturer hosted its FY 2024 results call (year ending 30 March 2024), posting a decline in revenue and earnings for the first time in 10 years. Free cash flow continues to be in the red with negative £24m FCF for FY 24. Victoria took a break from its usual M&A activity in FY 24 as it looks to cut costs to support FCF generation. Read more from 9fin’s Denitsa Stoyanova here.