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On 21 September 2022, Bloomberg reported that Singapore-based gateway services provider SATS Ltd. is in talks to acquire Cerberus-owned aviation cargo handler Worldwide Flight Services (WFS) for as much as $3bn.

While SATS and WFS have each confirmed that discussions regarding a potential acquisition are ongoing, SATS stated that no definitive terms have been agreed and that the Bloomberg article contained “materially inaccurate facts”.

Based on our analysis, SATS could avoid triggering a Change of Control put under WFS’s outstanding high yield bonds if it was to acquire WFS, due to a lenient portability feature.

WFS has three series of senior secured notes outstanding, each issued by Promontoria Holding 264 B.V. (the “Issuer”):

$400m 7.875% Senior Secured Notes due 2027

€250m 6.125% Senior Secured FRNs due 2027

€340m 6.375% Senior Secured Notes due 2027

The Issuer also has a €160m Super Senior RCF. This report only analyses the Change of Control covenant for the Notes and does not cover any change of control clauses in respect of the RCF or any other instruments.

Typically, the Company is required to make an offer to repurchase the Notes at 101% upon a “Change of Control”, unless it has exercised the right to optionally redeem the Notes.

“Change of Control” is generally defined as:

the sale of all or substantially all of the assets of the Issuer and its Subsidiaries to anyone other than the Permitted Holders or

any person or group other than the Permitted Holders becomes the beneficial owner of > 50% of the total voting power of the Issuer’s voting stock,

subject to certain exceptions (most notably, a leverage-based portability exception, as described further below).

“Permitted Holders” generally includes:

the “Sponsor”: investment funds affiliated, managed, advised and/or controlled by Cerberus Capital Management L.P. and their respective affiliates (other than portfolio companies) and persons that enter into a Cerberus-controlled “group”;

the Management Group: group consisting of the directors, executive officers and other management personnel of the Issuer or any Restricted Subsidiary or any Parent as of the Issue Date, together with (1) new directors approved by a majority of directors still in office that were directors on the Issue Date or previously so approved and (2) executive directors and other management personnel hired when directors on the Issue Date and new directors approved as per (1) constituted a majority of directors; and

certain holding companies and “groups” of which Permitted Holders are members, so long as no person or group other than Permitted Holders owns > 50% of the voting stock

There is a portability exception, specifying that a Change of Control will not be deemed to have occurred where net leverage < 5.80x on a pro forma basis for the transaction (limited to one use) - see the definition of “Specified Change of Control Event”.

As per WFS’s Q2 2022 report, net leverage is currently c.4.9x. At this leverage level, the outstanding bonds are all portable, and SATS could leave the Notes in place should they acquire WFS.

An optional redemption of the bonds is unlikely since the Floating Rate Notes and Fixed Notes are non-callable until March 2023 and March 2024, respectively.

If SATS were to acquire WFS and redeem the outstanding notes during the non-call period, they would have to pay a make-whole premium — see “Applicable Premium” — which seems particularly unappealing given the current macro environment. However, the Floating Rate Notes will become callable at 101% from March 2023.

The Notes have traded massively upwards on the news. Yesterday (Tuesday 20 September), the €340m 6.375% SSNs were trading at 84.008, the $400m 7.875% SSNs were trading at 84.971 and the €250m Floating Rate Notes were trading at 89.25. Today (Wednesday 21 September), the €340m 6.375% SSNs are trading at 94.45, the $400m 7.875% SSNs are trading at 88.13 and the €250m Floating Rate Notes are trading at 93.929.

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