Financial Statement FY 2019/20
German heat exchanging solutions provider Arvos Group is seeking to refinance its €380 million first lien term loan as well as its €33 million RCF, the Triton-owned company told Reorg. The facilities are due in May and August 2021 and the process is underway. Continue reading for the EMEA Core Credit by Reorg team's update on the Arvos Group debt refinancing, and request a trial to access our coverage of thousands of other debt refinancings.
The company’s term loans are quoted in the low 80s, reflecting its exposure to falling demand in power generation, petrochemicals and other industrial end markets as a result of the Covid-19 crisis, sources said.
As of June 30, Arvos’ net debt to last-12-months’ adjusted EBITDA was 5.6x, according to sources, increasing slightly from 5.5x at March 31. The first lien covenant stipulates that net leverage should not be higher than 6x when the RCF is drawn over €12 million. Arvos’ RCF was drawn by €12 million during lockdown to temporarily improve liquidity and remains at that level, as a result the springing covenant is not in effect, sources said.
Arvos had net debt of €351.8 million and cash and cash equivalents of €52.6 million at March 31. The group has the following capital structure (with effective interest rates as of March 31):
- €59 million first lien B1 euro loan with effective interest of 6.99% due Aug. 29, 2021;
- €73.2 million first lien B1 dollar loan at 6.43% due Aug. 29, 2021;
- €70.6 million first lien B2 euro loan at 6.99% due Aug. 29, 2021;
- €73.2 first lien B2 dollar loan at 6.43% due Aug. 29, 2021;
- €104.8 million first lien B3 euro loan at 7.7% due Aug. 29, 2021;
- €33 million senior secured RCF, swing line facility, at 4.5% due May 29, 2021; and
- €112 million multi-currency letter of credit facility due May 29, 2021.
The dollar and euro term loans are repaid in consecutive quarterly scheduled installments in an amount equal to 0.25% of the original principal. The first lien loans and RCF are pari passu
Margin for the term loans and the RCF is set at 4.5% above LIBOR for the dollar tranches, and Euribor for the euro tranches when net leverage is above 3.75x. A 4.25% margin is permitted with net leverage below 3.75x. The loans have an interest rate floor of 1%.
The group also has a shareholder loan of about €334.5 million in the form of preferred equity certificates PECs maturing in 2044. The PECs have an effective annual interest rate of 11% paid on Dec. 31 provided that certain conditions (including a declaration by the board of managers as well as sufficient equity and funds available) are met. The PEC’s rank senior to ordinary shares but junior to all other present and future obligations.
The group has the following organizational structure:
Avros reported net sales of €323.8 million for the full year ending March 31, flat year over year when adjusted for continuing operations.
Revenue is split between two divisions: the Schmidtsche Schack Division which designs and provides heat transfer solutions for petrochemical, chemical and metallurgical processes; and the Ljungström Division which provides air preheaters and gas-gas heaters for thermal power generation facilities, also known as rotary regenerative heat exchangers.
Schmidtsche Schack Division generated 41.3% of revenue for the 2019/20 financial year, with the remaining 58.7% generated by Ljungström.
Arvos sold its Ljungström parts business in the second quarter ending Sept. 30. The sale is understood to be a very small part of the company's business, sources said. In June 2018, the company’s then third division, Raymond Bartlett Snow, was acquired
by Schenck Process.
With regards to the effect of Covid-19 on the business, as of June all corporate sites of the group are up and running in all countries, the only exception being China and India. Order intake in the months of May and June were relatively high and above expectations for both divisions. The group also notes that the aftermarket business constitutes more than 60% of its turnover. Arvos believes that companies in the energy and in the petrochemical sectors cannot delay their maintenance, repair and overhaul operations for very long.
The company is due to hold a private creditors’ call for the second quarter ending Sept. 30 on Nov. 30 at 2 p.m. GMT. Arvos Group was acquired by Triton Fund IV in August 2014.