Cerberus Set to Buy Defaulted Financier Axsesstoday Ltd for A$259M

Relevant Documents:
Meeting of creditors ASX announcement Aug. 21
Circulating resolution of noteholders - Series 2 Aug. 21
Circulating resolution of noteholders - Subordinated Notes Aug 21

Defaulted equipment financier Axsesstoday Ltd’s (ASX: AXL) voluntary administrators Deloitte Advisory Services today (Aug. 21) announced on the Axsesstoday website that Cerberus Capital Management will pay A$259.7 million ($175 million) for the company if a deed of company arrangement (DOCA) is approved by creditors at a meeting scheduled for August 30.

Deloitte said the syndicate of senior lenders will be repaid in full.

Unsecured creditors might only get as much as $18.8 cents per dollar on their investment, Deloitte said, depending on whether the DOCA is approved by creditors. If it is not approved Axsesstoday will be wound up and the proposed transaction will be voided.

The following chart from the Deloitte announcement shows the breakdown of payments to creditors under different scenarios:
 

Deloitte said Axsesstoday will be sold as a “going concern” which will be “effected through a restructure and transfer of all operating assets”. Following the sale of the operating business, the DOCA process will provide for the sale of the ASX Listed Shell, it said.

The total value of the transaction is estimated to be A$259.7 million, Deloitte said.

Deloitte said that as at March 31, 2019, Axsesstoday had access to “A$383m of debt facilities, which were 78.7% utilised at the time”.

Cerberus Proposal

Companies in voluntary administration according to the Deloitte announcement are:
 

• Axsesstoday Limited (ACN 603 323 182)
• A.C.N. 603 303 126 Pty Ltd (ACN 603 303 126)
• Axsesstoday Operations Pty Ltd (ACN 604 340 785)
• Axsesstoday Retail Pty Ltd (ACN 161 130 696)

The AXL corporate structure is as follows:
 

After receiving seven non-binding indicative offers (NBIO’s), Deloitte on July 1, 2019 entered into an exclusivity agreement with Promontoria Holding 304 BV (PH304), a subsidiary of Cerberus Capital Management L.P. (Cerberus). The PH304 proposal involves the recapitalisation of ACN Co, AXL Operations (being the main two operating entities), AXL Retail, and if required, 50388865 BL Pty Ltd, via a Deed of Company Arrangement (DOCA).

The proposal does not include AXL which will be subject to a sale agreement with another party.

The company’s senior lenders formerly were Commonwealth Bank of Australia and Macquarie Bank, but Deutsche Bank became the senior lender from May 17, 2019, subsequent to the Deloitte appointment, according to the Deloitte announcement.

Axsesstoday’s debt, per details in the Deloitte document, includes:
 

• Series 1 Notes A secured note issued in 2015 for A$50 million, ranking after the Series 2 Notes, and held by Bank of New York Mellon as the trustee of the Axsesstoday Second Note Trust and Permanent Custodians Limited as security trustee of the Axsesstoday Second Security Trust. These have in the past been referred to as the subordinated notes
• Series 2 Notes A secured note issued in May 2017 for a total of A$30 million and ranks between the Series 1 Notes and the Senior Lenders. Held by Bank of New York Mellon as the trustee of the Axsesstoday Note Trust and Permanent Custodians Limited as security trustee of the Axsesstoday Security Trust
• Syndicated Facilities Agreement dated 9 November 2016 between, amongst others, Axsesstoday Limited, CBA, MBL and the Agent (as amended and/or amended and restated from time to time)
• Axsesstoday Equipment Warehouse Trust (AEWT). Established March 9, 2018 and on March 26, 2018 issued a series of notes as part of a A$200 million securitised warehouse facility (SWF). On establishment, the Consolidated Group sold a portion of its Receivables into the AEWT and continued to sell in qualifying Receivables through a number of subsequent tranches up to early July 2018. The AEWT is funded by Securitisation Notes of which 70% were initially held by MBL as the lender to the AEWT (Warehouse Lender) and 30% by ACN Co. Following our appointment, on 17 May 2019 MBL sold its debt to Deutsche Bank AG (DB). Perpetual Corporate Trust Limited is the trustee of the trust (SWF Trustee).
• Simple Corporate Bonds issued on July 4, 2018 by AXL totalling A$55 million

PH304’s total consideration offered for the business is made up of:
 

• Repayment in full to the Syndicated Lenders
• Payment to the Warehouse Lender of amounts owing to it under the SFW Agreements
• Repayment of principal and accrued interest of Subordinated Noteholders up to the date the DOCA is completed
• Continuation of employment for current employees
• Payment of $16.2m into a Creditors’ Trust for distribution to unsecured creditors. Where the Noteholders agree to receive principal and all accrued ordinary interest in full satisfaction of the Group’s obligations in respect of the Notes, an additional amount of c. A$1.5m will be paid into a Creditors’ Trust for distribution to unsecured creditors.
• Any cash at bank after payment of all trading liabilities and costs of the voluntary administration, DOCA and Creditors’ Trust are to be applied in reduction of the Senior Lenders debt.

The total value of the transaction is estimated to be A$259.7m.

Cause of default

Based on preliminary investigations including a review of the consolidated group’s operations, correspondence and discussions with the directors, “our view is that the financial difficulties of the companies were largely due to management’s focus on aggressively growing the receivables book and the impact this had on the risk profile of the business”.

Deloitte said “further, the growth required increasing amounts of funding, which [led] to the Consolidated Group’s capital structure evolving to include more complex funding structures and facilities”.