Winding Up — Will lower rates ease LME tensions?

Alessia Argentieri

20 September 2024•6 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.

It’s been a busy week in distressed land, with a flurry of developments in some of the hottest restructuring processes that are taking place across Europe. All the while new trends in monetary policy have kept investors occupied.

On Wednesday (18 September), the Fed slashed interest rates by an unusually large half a percentage point to between 4.75%-5%, a strong move that marked not only the first cut since the start of the pandemic but also a drastic shift from a policy of high rates aimed at cooling the economy and taming inflation.

The cut has signalled a refocus of the Fed’s policy on ensuring economic growth and supporting the US job market, which has recently shown signs of weakening. Inflation, on the contrary, has been firmly kept under control, having tumbled from a peak of 9.1% in June 2022 to 2.5% last August, not far from the Fed’s 2% target.

The move is also intended to bring some relief to borrowers, making debt less painfully expensive for consumers and businesses, and might even have an impact on the US presidential election, which is only six weeks away.

The European Central Bank (ECB) made a similar move last week, cutting interest rates by a quarter percentage point to 3.5 % in response to falling Eurozone inflation, with suggestions that further cuts are on the horizon.

Unlike the Fed and the ECB, the Bank of England decided to take a more cautious approach and kept interest rates unchanged at 5% on Thursday (19 September). UK inflation held steady at 2.2% in August but is expected to increase to 2.5% by the end of the year, while the economy is forecast to grow at a subdued 0.3% quarterly pace in the second half of 2024.

The government’s first budget next month — which prime minister Keir Starmer has warned the country: “it's going to be painful” — has also cast a looming shadow on expectations and has affected consumer confidence, which has sharply fallen, according to the GfK consumer confidence index.

However, despite a certain degree of lingering uncertainty, the BoE cut borrowing costs by a quarter point at its meeting last month and has signalled that another reduction is likely to be taken at its next meeting in November.

Overall, it is undeniable that there has been a global shift in favour of a monetary-easing cycle, which will make refinancing more attractive for issuers and might even ease some of the tensions that, in the restructuring landscape, have escalated into liability management exercises (LMEs).

But for now LMEs and co-op agreements continue to be in the spotlight and dominate the news in the restructuring space, while experts speculate on how much these strategies will reshape legal boundaries and transform the relationship between borrowers and creditors across Europe.

This week, 9fin reported that most of the secured creditors to telco Altice France have agreed to extend until February 2026 their co-op agreement, a pact that was initially signed for only a six month.

Elsewhere, Italian paper and packaging group Pro-Gest has started the sale of its non-core assets while drafting its restructuring plan, and Lowell saw some of its largest bondholders sign non-disclosure agreements as refinancing negotiations ramp up.

Thames Water, never far from the spotlight, has also been in focus after it said it was holding talks with its creditors and exploring liquidity options that would allow the business to avoid a temporary nationalisation through a special administration regime (SAR).

The buzz of activity in the European restructuring space comes amid a heightened default tally, according to data published by S&P Global in one of its latest reports. The total default tally in the first eight months of 2024 was 42% higher in Europe than the previous year-to-date tally and the highest year-to-date count since 2008.

Taking a glance at the sectors that saw the highest volumes globally, most defaults continue to be in consumer-facing sectors such as media and entertainment and consumer products. These were the leading sectors in year-to-date defaults with 16 each, followed by health care with 13, according to the report.

But now let’s dive into this week’s news…

This week’s news

Altice France — Most of the secured creditors of the French telecommunications company have agreed to extend their co-op agreement until February 2026. Members of the co-op group hold roughly more than €17bn of Altice’s €20bn debt pile, according to 9fin sources.

AMC Entertainment — A group of 1L noteholders that includes Anchorage, Deutsche Bank and PSAM among others has filed a lawsuit against AMC Entertainment and GLAS Trust Company.

Cineworld — The cinema chain’s lenders voted in favour of a UK restructuring plan proposed by four of the group’s UK subsidiaries in plan meetings held 18 September but the vote was not unanimous across all voting classes, according to 9fin sources. Given there is opposition by one or more voting classes, the company would be asking the English court to exercise its cross-class cramdown powers to execute the plan.

Lowell — The company’s largest bondholders have signed non-disclosure agreements as refinancing negotiations ramp up. Lowell’s biggest bondholders include Arini, BlackRock and Invesco.

Pro-Gest — The Italian paper group has started the sale of its non-core assets while drafting its restructuring plan, which was delayed by the company’s decision to replace its CRO in July. However, the maturity of the company’s SUNs is approaching in December and frustration has been mounting among bondholders, eager to find a feasible solution that would not require a haircut.

Steward Health Care — The company received final approval of a global settlement with Medical Properties Trust (MPT), Steward’s FILO/ABL lenders and the official committee of unsecured creditors at a relatively uncontentious hearing.

Thames Water — The UK water company is holding talks with some of its largest creditors to find fresh financing and extend its liquidity runway. Thames said that a formal process to raise new equity would be launched in the coming weeks and that it has enough cash to keep its operations running until the end of May 2025.