Fri 08/13/2021 05:50 AM
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Relevant Documents:
Investor Presentation
Solicitation Launch Announcement
Notice of Meeting

India-based entertainment company ErosSTX Global Corp. has launched a consent solicitation to extend the maturity of its £50 million 6.5% U.K. retail bond due Oct. 15 until April 15, 2023. The requested amendments include increasing its annual coupon to 8.5% from 6.5%, effective from Oct. 15.

The company said it is also conducting a formal internal review of certain accounting practices and internal controls related to its Eros subsidiaries as it believes significant revenues from these subsidiaries may not have been recognized in its financial year 2020.

The group stated it is possible a “significant portion” of the accounts receivable associated with such revenue was valued at zero in interim financial statements, as part of the preliminary purchase price allocation for Eros’ merger with STX Entertainment.

Eros also said it expects acquired intangible assets and goodwill are likely to be impaired in full-year 2021 financial statements and expects to report one or more material weaknesses in controls over financial reporting.

Consent Solicitation

Eros’ consent solicitation also proposes changes to the financial reporting covenants, extending the requirement to provide an annual report for the fiscal year 2021 by July 31 to Nov. 30 and the first-half report by Nov. 30 to Jan. 31. Last week the company’s bonds fell about 40 points to be quoted in the 47-52 range after the group made an appeal to extend the deadline for filing its 2021 annual report.

The company is also asking its leverage ratio and fixed charge cover ratio covenants to be waived until the release of financial statements for the fiscal 2023 interim period (six months ended Sept 30, 2022).

Eros stated that proposed amendments will allow it to access additional liquidity that is required to fund its operations and allow it to continue trading as a going concern while its film business recovers from the Covid-19 pandemic.

The consent solicitation commenced Aug. 10 with an early deadline of Aug. 24 and a final deadline of Sept. 1. The company is offering a 50 bps early voting fee until the early voting deadline.

The bondholder meeting in which bondholders can vote on the consent solicitation as an extraordinary resolution will be held on Sept. 3 at 4:30 p.m. BST via a teleconference.

The quorum required for the meeting is two or more bondholders representing not less than 75% aggregate nominal amount of the bonds outstanding. If a quorum is not met, the meeting will be adjourned and the quorum for that will be two or more bondholders representing not less than 25% of the aggregate nominal amount of the bonds. To be passed, the extraordinary resolution requires a majority in favor, consisting of not less than 75% of the votes cast at a meeting.

STX Library Films

Eros said it expects to monetize 46 films from the STX library for which it has entered into exclusive negotiations with a “third party.” It added that the financial terms for the sale were agreed but it is subject to confirmatory diligence and definitive documentation. Proceeds from the sale will be used to settle the $150 million JPMorgan asset backed facility maturing in Oct. 21 and $23 million mezzanine facility maturing in July 22. Pro forma for the sale and debt redemption, gross debt would be $161 million and retail bonds will become the most senior in Eros STX Global's debt structure.

Revenue for the nine months ended Dec. 31 was $219 million compared with $315 million the previous year, with the company attributing the drop to a reduction in global film releases due to the Covid-19 pandemic. Operating profit for the nine months ended Dec. 31, 2020, excluding merger costs, was $22 million compared with an operating loss of $99 million the previous year.

Net debt as of Dec. 31, 2020, stood at $284 million with total cash on hand of $62 million.
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