Thu 09/05/2019 08:43 AM
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Cheyne Capital, Chenavari, Credit Suisse and King Street are among holders in Lecta bonds and are expected to organize and hire a financial advisor soon, sources told Reorg. The funds likely bought into the debt of the Spanish paper and packaging company in recent weeks in the 40s to 60s.

Larger holders own chunks of €25 million to €50 million of debt each. Several investors hold between €2 million and €8 million, sources said. The creditors haven’t organized in a group yet and so far the funds represent roughly 20% to 30% by value of total senior secured debt.

No mandate has been awarded but advisors including PW Partners, PJT and Houlihan Lokey are in discussions with some of the bondholders. The majority of noteholders remain real money funds, sources added.

Management encouraged bondholders to organize, during an earnings call on Sept. 3, so it can start engaging with its advisors. Lecta retained Evercore and Rothschild as financial advisors to “analyze and implement strategic alternatives for the business.”

Lecta 2022 and 2023 notes rose to 37.5/40 on Sept. 4 as some investors short covered the debt, sources said. The notes grew to the mid-30s after the company’s call from the mid-20s before the call. Moody's downgraded Lecta to Caa1 from B3 with a stable outlook on Sept. 4.

Discussions are at very early stages, but some sources have suggested that bondholders may be able to strike a consensual deal with owner CVC. This could include investors providing new money, which would prime existing bondholders whose debt may be largely equitized.

Lecta has previously said it needs about €50 million for the conversion of the Condat Mill in France. On the earnings call, management sounded confident that something could be worked out with the French authorities in regards to securing financial aid. Management added that the S&P estimate of €40 million to €50 million on employee severance costs was based on comparable situations which have occurred in the country.

Some sources told Reorg that the company could need between €100 million and €150 million to fund its working capital needs, especially if suppliers decide to shorten payment terms from an average level of 130 days currently to 90 and then eventually 30, several sources told Reorg.

The company said during the earnings call that it fully drew on its €65 million RCF. Management added that the €30 million drawdown since the end of June was used to pay the August coupon payment of about €18 million, while €10 million was used for inventory after the Italian plant’s new ERP system implementation issues.

During the call, management also said there have been no changes on supplier payment terms since the first quarter and added that a conversation with its trade credit providers will take place this week. As part of its working capital management, Lecta uses non-recourse factoring lines and assigns trade receivables to financial institutions. The face value of these invoices amounted to €53.5 million at the end of 2018.

Lecta’s debt spiraled in early August to the mid-50s after reports said the European Commission was not favoring a planned €35 million state support package from French authorities. This would have allowed the paper mill in France to be converted to specialty paper production by 2021 for a total cost of €53 million.

The company has been suffering from structurally declining demand in the coated woodfree, or CWF, market. Lecta recorded a 49% year-over-year EBITDA decline in this segment in the fourth quarter of 2018 and a 25% decline for the full year 2018 compared with 2017. As a result, the company needs to convert many of its CWF facilities into speciality paper plants or wind them down. Management said it expects €60 million in capex for the financial year 2019.

The company’s debt profile is below:
 
 
Lecta
 
06/30/2019
 
EBITDA Multiple
(EUR in Millions)
Amount
Price
Mkt. Val.
Maturity
Rate
Yield
Book
Market
 
€65M Super Senior RCF
35.0
 
35.0
2022
4.000%
 
 
Total Super Senior Secured Debt
35.0
 
35.0
 
0.3x
0.3x
€225M Senior Secured Notes
225.0
34.4
77.4
2022-08
E + 6.375%
 
 
€375M Senior Secured Notes
375.0
30.0
112.5
2023-08
6.500%
 
 
Total Senior Secured Debt
600.0
 
189.9
 
6.1x
2.1x
Polyedra Loans
3.0
 
3.0
2022-06
E + 1.550%
 
 
Cartiere del Garda Debt
4.9
 
4.9
 
 
 
 
Co-generation loans (Alto Garda Power + Torraspapel)
7.8
 
7.8
 
 
 
 
Total OpCo Debt
15.7
 
15.7
 
6.2x
2.3x
Bank Overdrafts
26.2
 
26.2
 
 
 
 
Total Other Debt
26.2
 
26.2
 
6.5x
2.5x
Total Debt
676.9
 
266.8
 
6.5x
2.5x
Less: Cash and Equivalents
(78.9)
 
(78.9)
 
Net Debt
598.0
 
187.9
 
5.7x
1.8x
Operating Metrics
LTM Reported EBITDA
104.7
 
 
Liquidity
RCF Commitments
65.0
 
Less: Drawn
(35.0)
 
Plus: Cash and Equivalents
78.9
 
Total Liquidity
108.9
 
Credit Metrics
Gross Leverage
6.5x
 
Net Leverage
5.7x
 

Notes:
Pricing data as of Sep. 2 2019. RCF fully drawn as of Sep. Gross debt excludes leases (€24.8M as of Jan. 1, 2019) and non-recourse factoring lines (€53.5M of trade receivables assigned at the end of 2018).
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