Global Cloud XChange
GCX Discusses Short-Term Maturity Extension From Bondholders for Upcoming $350M 7% Notes due Aug. 1 as Private Financing Lags, Bid Seen at 93.25
Wed 07/10/2019 22:10 PM
Global Cloud Xchange has discussed a short-term maturity extension from bondholders for its $350 million 7% notes as financing for the takeout may not complete ahead of the Aug. 1 maturity, sources with direct knowledge of the matter said.
GCX bonds have rallied from 82 in February to 92 at present buoyed by speculation that company will be able to secure private refinancing. GCX had on March 5 announced that it had hired Lazard as financial adviser to evaluate financing options, as reported. One bid was seen overnight (July 10) at 93.25 on rumours the private refinancing would be completed by the end of July, two sources said.
Varde and Citi have been linked with the financing, which has been rumoured to be priced from as low as Libor + 900bps into the low teens, according to sources. Varde holds around 30% of the bonds through its Singapore unit, as reported, but was not invited to join the ad hoc group because it also has Reliance Communications (RCOM) debt and is seen as conflicted. The ad hoc group previously was working with Goldman Sachs as financial advisor and White & Case as legal advisor, as reported, but sources said Goldman was never formally engaged and is no longer working with the group. The ad hoc group, which includes Bardin Hill and Blenheim Capital, holds around 50% of the notes, according to sources.
Potential drawbacks related to GCX for special situation investors include the age of the company’s cables, as well as the value of receivables from its parent, RCOM, which is currently undergoing a corporate insolvency resolution process with the NCLT.
GCX told bondholders in a July 2 email, confirmed by Reorg, that it needs time to finalize the resolution plan which “may include either a refinancing transaction, or potential bid process in which bondholders would have an opportunity to participate[.]” The extension will be “within the framework of a judicial process to protect shareholder value,” according to the email.
RCOM-owned GCX said in the email it is in “advanced discussions with a lender on a private loan to refinance its senior secured notes and confirmatory due diligence is ongoing.” The company has been forced to look at various alternatives as there can be “no certainty” that the private loan process that the company was working on “will complete ahead of the bond maturity,” according to the email.
The private refinancing plan by GCX comes at a time India’s credit risk premium is rising due to the National Company Law Appellate Tribunal’s judgment on Essar Steel, sources said. The NCLAT ordered that Essar’s financial and operational creditors will be afforded “similar treatment” and will receive almost identical distributions under the resolution process, reversing a resolution plan approved by Essar’s committee of creditors that favored a higher payout for secured financial creditors.
The company’s capital structure is shown below.
CoC Meeting
The committee of creditors of RCOM met on July 9 to discuss the redemption of GCX bonds, among other things, but was unable to agree on a specific plan, the sources said. An incoming investor needs approval of the resolution professional to acquire an equity stake in GCX from its parent RCOM as the distressed telecom company is undergoing CIRP in the National Company Law Tribunal Mumbai, the sources explained.
The CoC meeting, helmed by resolution professional Anish Nanavaty, who was appointed on June 28, deliberated on a summary of the latest cash flow situation of the group, the sources said.
In a June 25 presentation to bondholders, a copy of which has been seen by Reorg, GCX said for a bond refinancing it needs cooperation from the resolution professional and shareholders as “it is in the shareholders’ interests for GCX to refinance on competitive terms in order to preserve equity value.” GCX’s cash flows are ring-fenced from RCOM and will not be available to the RP, according to the presentation.
As of March 31, GCX had net unsecured receivables of $132 million from RCOM and its subsidiaries ($146.9 million of receivables and $14.9 million of payables) and it is filing an unsecured creditor claim with the resolution professional for these amounts, the company said in the same presentation.
GCX’s subsea cable and data centre units are among the company’s key assets, the sources said. GCX owns and operates five subsea cable systems, covering total route kilometers of approximately 66,000, excluding the Eagle system, which is currently in development and is expected to be online in 2023, according to the company presentation.
GCX’s historical and expected gross margin and EBITDA margin, as shown in the investor presentation, is shown below.
However, special situation investors are concerned about the age of the GCX’s telecom assets as most of them are first generation assets while telecom technology is gearing up for the launch of fifth generation (5G) services, the sources said.
According to the June investor presentation, four of the company’s five cable network systems were developed between 1997 and 2006, with the most recent coming in 2011. The book value of the company’s cable system assets is at $838 million, according to the presentation, compared with the more than $4 billion that it took to construct them. Also, large players like Google and Netflix use their own cables and do not rely on operator cable transmission, the sources added.
Moreover, some investors are concerned that RCOM’s balance sheet may have some unknowns as an investigation by lenders is currently ongoing, the sources said. A probe commissioned by State Bank of India has flagged suspect transactions worth INR 55 billion in RCOM and two other group companies for further investigations, Economic Times reported July 10.
GCX bonds have rallied from 82 in February to 92 at present buoyed by speculation that company will be able to secure private refinancing. GCX had on March 5 announced that it had hired Lazard as financial adviser to evaluate financing options, as reported. One bid was seen overnight (July 10) at 93.25 on rumours the private refinancing would be completed by the end of July, two sources said.
Varde and Citi have been linked with the financing, which has been rumoured to be priced from as low as Libor + 900bps into the low teens, according to sources. Varde holds around 30% of the bonds through its Singapore unit, as reported, but was not invited to join the ad hoc group because it also has Reliance Communications (RCOM) debt and is seen as conflicted. The ad hoc group previously was working with Goldman Sachs as financial advisor and White & Case as legal advisor, as reported, but sources said Goldman was never formally engaged and is no longer working with the group. The ad hoc group, which includes Bardin Hill and Blenheim Capital, holds around 50% of the notes, according to sources.
Potential drawbacks related to GCX for special situation investors include the age of the company’s cables, as well as the value of receivables from its parent, RCOM, which is currently undergoing a corporate insolvency resolution process with the NCLT.
GCX told bondholders in a July 2 email, confirmed by Reorg, that it needs time to finalize the resolution plan which “may include either a refinancing transaction, or potential bid process in which bondholders would have an opportunity to participate[.]” The extension will be “within the framework of a judicial process to protect shareholder value,” according to the email.
RCOM-owned GCX said in the email it is in “advanced discussions with a lender on a private loan to refinance its senior secured notes and confirmatory due diligence is ongoing.” The company has been forced to look at various alternatives as there can be “no certainty” that the private loan process that the company was working on “will complete ahead of the bond maturity,” according to the email.
The private refinancing plan by GCX comes at a time India’s credit risk premium is rising due to the National Company Law Appellate Tribunal’s judgment on Essar Steel, sources said. The NCLAT ordered that Essar’s financial and operational creditors will be afforded “similar treatment” and will receive almost identical distributions under the resolution process, reversing a resolution plan approved by Essar’s committee of creditors that favored a higher payout for secured financial creditors.
The company’s capital structure is shown below.
CoC Meeting
The committee of creditors of RCOM met on July 9 to discuss the redemption of GCX bonds, among other things, but was unable to agree on a specific plan, the sources said. An incoming investor needs approval of the resolution professional to acquire an equity stake in GCX from its parent RCOM as the distressed telecom company is undergoing CIRP in the National Company Law Tribunal Mumbai, the sources explained.
The CoC meeting, helmed by resolution professional Anish Nanavaty, who was appointed on June 28, deliberated on a summary of the latest cash flow situation of the group, the sources said.
In a June 25 presentation to bondholders, a copy of which has been seen by Reorg, GCX said for a bond refinancing it needs cooperation from the resolution professional and shareholders as “it is in the shareholders’ interests for GCX to refinance on competitive terms in order to preserve equity value.” GCX’s cash flows are ring-fenced from RCOM and will not be available to the RP, according to the presentation.
As of March 31, GCX had net unsecured receivables of $132 million from RCOM and its subsidiaries ($146.9 million of receivables and $14.9 million of payables) and it is filing an unsecured creditor claim with the resolution professional for these amounts, the company said in the same presentation.
GCX’s subsea cable and data centre units are among the company’s key assets, the sources said. GCX owns and operates five subsea cable systems, covering total route kilometers of approximately 66,000, excluding the Eagle system, which is currently in development and is expected to be online in 2023, according to the company presentation.
GCX’s historical and expected gross margin and EBITDA margin, as shown in the investor presentation, is shown below.
However, special situation investors are concerned about the age of the GCX’s telecom assets as most of them are first generation assets while telecom technology is gearing up for the launch of fifth generation (5G) services, the sources said.
According to the June investor presentation, four of the company’s five cable network systems were developed between 1997 and 2006, with the most recent coming in 2011. The book value of the company’s cable system assets is at $838 million, according to the presentation, compared with the more than $4 billion that it took to construct them. Also, large players like Google and Netflix use their own cables and do not rely on operator cable transmission, the sources added.
Moreover, some investors are concerned that RCOM’s balance sheet may have some unknowns as an investigation by lenders is currently ongoing, the sources said. A probe commissioned by State Bank of India has flagged suspect transactions worth INR 55 billion in RCOM and two other group companies for further investigations, Economic Times reported July 10.
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