GSO CLO Sells Out of New Look’s FRN as Bondholders Hire Rothschild, Sidley Austin as Advisers; Steinhoff to Negotiate With Lenders, Raises Capital; Lowell New Bonds Drop to Mid-90s

Distressed retailers kept investors anticipating this week when a group of New Look’s creditors hired Rothschild and Sidley Austin as financial and legal advisers. The ad hoc group organized last week and initially comprised Alcentra, Avenue, Carlyle, CQS, GSO and M&G. But trading in the U.K. retailer’s debt has been rife and Blackstone’s credit arm CLO exited the debt by selling €41 million of FRNs to a distressed buyer. On the day of the trade, the FRN was quoted at 44/46 today, from 41 on Jan 23. New Look’s 6.5% bond rose to 45/47 today from 42 Tuesday. The 8% notes are quoted at 16/20 compared with 14 a few days ago.

A group of secondary investors including Carval has been buying into the 6.5% notes in the secondary market in recent months. With growing concerns of liquidity, New Look has already started negotiating leases and the company’s owner Brait is considering a landlord liability management exercise to cut its stores by 10%. These measures may come alongside a broader balance sheet restructuring, possibly including debt-for-equity swaps. Brait hired Paul Hastings as its legal advisor. Houlihan Lokey and Goldman Sachs are financial advisors.

Investors have been focusing on debt collectors after the recent Garfunkel-Lowell bond issue and as the industry continues to grow. Debt traded down at U.K.-based debt collectors Arrow Global, Cabot Credit Management and the Garfunkelux-Lowell Group (GFKL), after GFKL raised €650 million equivalent of Euro and Swedish krona denominated notes at Euribor + 4.5% and Stibor + 4.75%.

GFKL’s new bonds are in the mid 90s as investors are increasingly pessimistic about the company. Market participants question the appropriateness of leverage metrics used by the industry. Although companies state that loan-to-value ratios, or LTVs, are between 60% and 87%, investors have been questioning the use of undiscounted 120-month gross cash flows in arriving at leverage.

GFKL’s notes funded its €730 million acquisition of the carved out businesses from Intrum-Lindorff merger. Leverage sought on the acquisition was 89%, excluding transaction fees.

Reorg Research has used valuation methodologies to determine leverage for Arrow, Cabot, GFKL and GFKL pro forma to the acquisition (GFKL pro forma). In all cases, it was noted that GFKL had little to no equity value, resulting in triple digit LTVs when certain valuation methodologies were employed. The analysis highlighted that GFKL was free cash flow (FCF) negative, while pro forma to the acquisition, FCF was a mere £23.5 million against £2.1 billion of debt, meaning that it would take the combined entity over 89 years to repay the debt - assuming constant operations.

Steinhoff and its subsidiaries continued their quest to bridge liquidity gaps this week. Conforama Group raised a €115 million loan from French asset manager Tikehau Capital while Kika Leiner in Austria reached an agreement with its creditors. Parent company Steinhoff International Holdings sold its 13.5% stake in PSG group to raise €478 million which will be used to redeem the rand-denominated bonds.

At a bank meeting in London today, management and its advisors Moelis, AlixPartners and Linklaters told the banks that the company is ready to shift to the next phase which includes negotiating with lenders and developing strategic options. The South African retailer has previously said it would ask for certain waivers.

In the days leading up the bank summit, one of Steinhoff’s lenders, Raiffeisen Bank, offloaded tranches of senior debt including €27.5 million of the company’s €772 million schuldschein and a €25 million block of the €2.9 billion revolving credit facility (€1.36 billion outstanding on Dec. 14) at 79.75.
   
German wind turbine manufacturer Nordex priced a debut €275 million 2023 senior notes this week. The notes, which came at 6.5%, put pressure on comparable German wind turbine manufacturer Senvion’s €400 million 3.875% senior secured notes due 2022, which were quoted at 93.5/94.5 on Jan. 25. Some investors were cautious of Nordex’s issue after management warned of an expected EBITDA drop, resulting from a €600 million revenue decline next year and structural market changes.

Senvion has come under pressure as the wind electricity market transitions from a system of government support to one driven by auctions. The shift may drive down revenue and tighten margins, leading to questions about the company’s future cash flows and ability to service its debt. Senvion’s 2022 senior secured notes were issued last April when the company released its third quarter results in November 2017.
 
One of the hedge funds involved in the legal dispute against Oceanwood's enforcement over Norske Skog's assets is criticizing Oceanwood for bringing contradictory claims in relation to the new €25 million non-recourse bank guarantee facility. The fund alleges that Oceanwood’s legal counsel, Akin Gump, has given inconsistent arguments in the London and New York legal proceedings with regards to urgency. Akin Gump and Oceanwood reject the allegations as baseless.

Meanwhile in Oslo, the bankruptcy court approved the insolvency reports submitted by five Norske Skog companies. In its submission, Norske Skogindustrier ASA said the parent company expects to sell its “main office functions” business to operating company Norske Skog AS shortly. The transaction, expected to feature an artificially low price, will enable Norske Skog AS to continue delivering the administrative services, such as IT and invoicing, which will help sustain the operations of the seven paper mills.
 
Eletson Holdings is working with investment bank Jefferies to advise on how to address the shipping company’s shrinking liquidity, covenant breach and $785 million of debt. Piraeus, Greece-based Eletson entered into grace period after skipping its semiannual $14 million coupon payment due Jan. 15 on its $300 million 9.625% first preferred ship mortgage notes maturing in 2022.

The interest payment had been in doubt because of a $22.4 million unrestricted cash position as of Jan. 5 and working capital requirement for its vessels. Eletson previously reported cash, cash equivalent, restricted cash and short-term investments of $57.2 million at the end of September 2017.
 
Justice Robert Hildyard has delayed handing down his judgment relating to the stay granted to the foreign representative of the International Bank of Azerbaijan under the UNCITRAL Model Law and Cross-Border Insolvency Regulations 2006. The judge was scheduled to provide an oral judgment on Jan. 25. The parties requested the hand-down be delayed as they wanted more time to discuss the matter between them. The judgment is expected next week at the Rolls Building in London.

The judge had previously rejected the application of the FR, who had sought to indefinitely extend the stay granted during its restructuring under the Model Law. The FR was granted permission to appeal to the English Court of Appeal. Justice Hildyard’s judgment had held that the voluntary restructuring approved by the Azerbaijani court last May did not have the effect of binding Franklin Templeton and Sberbank, given that they were creditors with English law governed debt, which could only be extinguished or amended by an English court (as dictated by the rule in Gibbs).

Earlier in the week Reorg published an analysis of Justice Hildyard judgment and its implications. It’s available HERE.
 
Croatian retailer Agrokor reported between HRK 865 million (€116 million) and HRK 1.384 billion (€186 million) of short-term available liquidity including its undrawn facility at the end of week three in its 13-week cash flow summary. This compares with liquidity of HRK 1.117 billion to HRK 1.513 billion at the end of week one for the Croatian food producer.

Agrokor’s undrawn facility totaled HRK 370 million. The company’s minimum cash balance for the 13 weeks was HRK 791 million at the end of week three compared with HRK 1.043 billion at the end of week one. The maximum cash balance amounted to HRK 1.310 billion at the end of that week compared with HRK 1.439 billion at the end of week one.
 
Creditors of bankrupt budget airline Air Berlin elected a committee and confirmed the company's insolvency administrators this week. At a meeting in Berlin on Jan. 25, creditors of the German airline sought to exclude AirBerlin BV from taking part in the committee as the business entity is financed by Etihad.

At the same meeting, Andreas Ziegenhagen from law firm Dentons, representing BV, contested the committee election point. The court will rule on the matter “in due course.” KEOS, a joint venture vehicle of Kirkland & Ellis and One Square Advisory Services, is a representative of Air Berlin’s holders of its €225 million 8.250% notes.