Relevant Document (in Spanish):April 2020 Moratorium Ruling
Madrid’s Court of First Instance No. 67
(Juzgado de Primera Instancia Número 67 de Madrid) has granted Celsa an injunction to temporarily postpone all debt servicing payments on its “convertible” debt tranche, sources told Reorg.
The moratorium order (Spain’s
rebus sic stantibus clause) allows the company to postpone payments for a year due to the Covid-19 pandemic and comes after the Spanish steelmaker was
granted a temporary moratorium injunction on its “jumbo” debt in May.
Celsa did not
meet its 4x leverage ratio in the second quarter, and it is unclear whether it breached it in the third quarter, sources said. If the company was able to cure its second-quarter covenant breach by the end of October, then Celsa would not be in breach of its leverage ratio covenant.
The covenant agreement states that exceeding leverage twice in a row allows lenders to enforce a debt-for-equity swap that would result in a creditor takeover of the holding company of the group, but not necessarily the opco entities, sources told Reorg.
The group’s lenders include Attestor Capital, Cross Ocean and Sculptor Capital Management, sources said. Some of the lenders have previously signaled they would be ready to enforce against a potential second consecutive breach of the company’s leverage ratio covenants. This would be used as a tactic to put pressure on the group, and force it to cut a debt restructuring deal with its creditors, sources added.
Celsa has 60 days to publish a compliance report following the day of the covenant test, where it will disclose whether the third-quarter covenant was breached or not, sources said.
The steelmaker believes that the moratorium injunctions
granted by the Madrid court in May and the most recent injunction on the convertible debt allow for the precautionary suspension of all interest and principal payments under the 2017
refinancing agreement until the same months of next year, sources told Reorg.
The injunctions are still provisional until the court provides a final sentence over the case, which will happen after a court hearing, still to be scheduled, sources said. Should a judge rule against Celsa, the interest payment delay would no longer apply and lenders would be able to enforce on the company or vote to waive the default. The required majority will depend on the judge’s final ruling, as
reported.
In June, Celsa’s jumbo holders
presented a restructuring plan to the company, which included converting close to €700 million of convertible debt into 49% of Celsa’s share capital. The plan would leave Celsa’s majority shareholders, the Rubiralta family, with a 51% stake in Celsa. The company does not agree with the plan and has not accepted the proposal.
The jumbo lenders
hired Goméz-Acebo y Pombo as their legal advisors and Houlihan Lokey as financial advisors, while the steelmaker has retained Cortés Abogados.
Celsa is considering requesting additional funding from the Spanish government's Covid-19 aid schemes, sources said. The company is in talks with state-owned entity
Sociedad Estatal de Participaciones Industriales, or SEPI. The SEPI aid would be an about €200 million loan, as
reported. However, the SEPI is reluctant to provide new money to Celsa until the company agrees to a restructuring deal with its creditors, sources told Reorg.
In May, Celsa obtained a loan of up to €51 million from banks, backed by Spain’s ICO guarantee line
scheme. The loan has been extended to €75 million. The increase was approved by the lender syndicate and received the support of equityholders at a shareholders’ meeting held in August.
As per the terms of Celsa’s 2017
restructuring, its jumbo debt of €900 million is expected to be repaid in full, while the €1.25 billion convertible debt will only be repaid if certain conditions are met. If not, the tranche will be converted into shares of the company.
The €2.67 billion refinancing retranched Celsa’s borrowings into three parts, as follows:
- Jumbo piece of €900 million, paying 3.25% to 4%, and due in 2022;
- €1.25 billion of convertible debt, paying 11% of PIK, due in 2023; and
- €527 million, paying growing interest between 2% and 3%, and due in 2022.
--Laura Vilaça, Luca Rossi