Fri 07/23/2021 08:21 AM
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Relevant Documents:
Convening Judgment
Sanction Judgment
Scheme of Arrangement
FY’20 Financial Report


Advisors and funds are monitoring ED&F Man closely as the commodities brokerage and trading business may be in need of a more comprehensive restructuring following its scheme of arrangement last year, sources told Reorg.

The company’s scheme, which was finalized in September last year, did not sufficiently address the company’s capital structure according to sources, leaving the company with a gross leverage of 17.5x. The business is suffering from thin margins, which means that it requires large working capital facilities to grow EBITDA by higher volumes, sources said.

There has not been much trading in the debt, which is mostly held by the original lenders, sources said. Some investors expressed ESG concerns about the sector. The company is also pursuing asset sales.

During its scheme of arrangement, ED&F Man was advised by FTI Consulting and Clifford Chance. THM Partners acted as financial advisors to the existing noteholders with Akin Gump as legal advisor. Deloitte was mandated as financial advisor to the coordinating committee alongside legal advisors Allen & Overy. However, some sources suggested that there could be changes in the advisors in a potential second restructuring process, depending on what the company and its creditors are aiming for.

Debt in the company is relatively illiquid, sources said, though pieces of the company’s tranche A loans have traded at about 78-83, sources added.

As of Sept. 30, 2020, the group had total committed borrowing facilities amounting to $1.66 billion, comprising $1.30 billion of term loans and RCFs maturing in September 2023, $184 million of U.S. private placement notes, maturing in September 2023 and a $163 million RCF facility maturing in September 2021.

The group also had access to a number of uncommitted credit lines in many of the jurisdictions in which it operates, of which $604 million was drawn at the year end. Cash and cash equivalents totaled $1.51 billion at the year end, of which available central cash on hand amounted to $541 million.

The group also had $125 million in undrawn facilities as of Sept. 30, 2020. This compared with $448 million in the previous year.

A capital structure of the group is below:
 
ED&F Man
 
09/30/2020
 
EBITDA Multiple
(USD in Millions)
Amount
Maturity
Rate
Book
 
$163M Secured RCF Facility due 2021
163.0
Sep-2021
 
 
$1.3B Multicurrency Secured Term Loan and RCF due 2023
1,309.0
Sep-2023
 
 
Total Secured Bank Debt
1,472.0
 
10.7x
$184M US Private Placement Fixed Rate Notes due 2023
184.0
Sep-2023
 
 
Uncommitted Credit Lines
604.0
 
 
 
Total Other Debt
788.0
 
16.5x
Lease Liabilities
137.0
 
 
 
Total Lease Liabilities
137.0
 
17.5x
Total Debt
2,397.0
 
17.5x
Less: Cash and Equivalents
(540.7)
 
Net Debt
1,856.3
 
13.5x
Operating Metrics
LTM Revenue
6,906.0
 
LTM Reported EBITDA
137.0
 
 
Liquidity
Other Liquidity
125.0
 
Plus: Cash and Equivalents
540.7
 
Total Liquidity
665.7
 
Credit Metrics
Gross Leverage
17.5x
 
Net Leverage
13.5x
 

Notes:
The capital structure is on a post-IFRS 16 basis. Cash position excludes $976M of segregated cash related to the customer assets and investment held by Brokerage business on behalf of customers, and $8.3M of restricted cash related to cash deposit for the letter of credit and guarantees. LTM reported EBITDA is calculated as loss before interest and tax plus depreciation, amortization and impairment, which includes impairment losses of relating to a receivable from a joint venture, and assets at Iansa and Ukraine. Total committed amount of RCF is not disclosed. Other liquidity refers to $125M of undrawn facilities.

The Scheme of Arrangement

In September last year, ED&F Man’s two-class scheme of arrangement was sanctioned by the High Court two weeks prior to a maturity wall. The need arose after the Covid-19 pandemic delayed the sale of units, the proceeds of which were to be used to pay down loans. The group was facing a $1 billion maturity wall in September 2020, which it was unable to repay.

The restructuring provided the company with an additional $300 million of working capital facilities from lenders and extended maturities by two years with a further extension of one year possible under certain conditions. The scheme liabilities were amended and restated into new secured debt instruments with the extended maturity dates.

More specifically, all scheme creditors other than those under the 2020 facility were entitled to convert their scheme liability into a new secured term loan or new secured term notes. The term loans and notes are subject to the same covenants and have the benefit of the same security package but the pricing structure differs, according to the court documents. These rates fall into five categories and range from 5.14% to 6.37%.

The conversion into the new debt featured an elevation to tranche A for scheme creditors who elected to participate pro rata in the new money element. For every dollar a creditor agreed to subscribe in addition to its pro rata share, the creditor was entitled to have two dollars of the creditor's participation in the secured term loan or secured term notes elevated to tranche A.

As for the $335 million facility, which was reduced from originally $606 million (the 2020 facility in court documents) was treated differently with the drawn amount of $144 million at the time being automatically converted into commitments under the new RCF and new notes, which ranks higher in priority to the secured term loan and the secured term notes, according to the court documents.

According to the court documents, all of the scheme creditors were unsecured but had the benefit of guarantees given by the group’s ultimate parent, which is ED&F Man Holding Ltd. before the scheme.

The scheme creditors included the following:
  • $777.5 million facility dated March 2019
  • $606 million facility dated March 2017, which was reduced to $335 million (the 2020 facility in the court documents)
  • $110 million facility dated March 2018
  • $195 million facility dated March 2019
  • $30 million facility dated March 2013
  • $35 million facility dated March 2014
  • Two series of notes with the face value of $65 million dated 2014 ($20 million notes due July 2021 and $45 million due July 2024
  • Three series of notes with a face value of $90 million ($20 million notes due 2021, $35 million notes due 2023, $35 million notes due 2026)
The new money element consisted of four instruments: a bridge loan and bridge notes, together in aggregate amount of $175 million, a new RCF and a new series of three year notes, together in the aggregate amount of $144 million.

FTI estimated that absent the scheme and in an administration, creditors would receive approximate recoveries in the range of 19% to 30%.

Financial Performance

ED&F sources, stores, sells and ships agricultural products including coffee, sugar, molasses, animal feed and pulses. The company owns some logistics assets such as warehouses, terminals and storage facilities.

Through the brokerage business, the group offers a full range of products across all the world’s major exchanges including trade processing, clearing, execution, financing and hedging.

Revenue for the year ended Sept. 31, 2020 fell to $6.91 billion from $7.73 billion the previous year. Gross profit in the period increased to $529 million from $496 million, while operating profit increased to $105 million from $87 million. However, the company reported a pretax loss of $44.8 million, driven by lower carrying values of the agri-industrial assets.

The group said that during the negotiating phase with lenders, it had to ask its subsidiaries to use as little cash as possible, which had an impact on trading profitability.

Revenues from contracts with customers amounted to $2.25 billion while revenue from the delivery of traded commodities stood at $3.93 billion for the period.

In January this year the group sold its structured commodities division to Albright Capital and De Jong Capital for an undisclosed amount. The company stated it was part of an asset to focus on its core business.

The company wants to exit its remaining agri-industrial assets and focus on its brokerage business.

A summary of the group’s financial performance is below:
 

ED&F is part of the ED&F Man group of companies that operates a commodity trading and brokerage business, and owns shareholdings in industrial and agricultural businesses.

-- Aurelia Seidlhofer, Connor Lovell, Thomas Baker
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