Intralot SA
Intralot Plans to Implement Restructuring Through Out-of-Court Process With Scheme as Backup Option; 2024 Indenture Cross-Default Language Has Opposing Interpretations; Repayment of 2021s Holdouts at Par ‘Unlikely’
Thu 02/04/2021 13:58 PM
Greek gaming group Intralot is planning to implement its restructuring deal using an out-of-court process or, as a backup option, an English law scheme of arrangement, sources told Reorg. With the current level of support from 2021 holders of around 82% the group has not reached the 90% 2021 consent threshold required for a consensual debt exchange. Continue reading for our EMEA Core Credit team's update on Intralot's restructuring process and request a trial for access to our analysis and reporting on hundreds of other restructuring situations in the region.
While some investors believe that the company could consider repaying the hold-out 2021 noteholders at par or leaving them outstanding, Reorg understands that neither option is very likely.
A scheme of arrangement remains as the back-up option although this could attract significant attention being a public process - something that the company is keen to avoid - and could trigger a possible challenge from the 2024 noteholders who believe the scheme would represent a cross-default under the 2024 indenture, sources said. The scheme process, in short, allows implementation of amendments to debt documents with the consent of just 75% of creditors per voting class.
The cross-default language in the 2024 notes indenture, which Reorg has seen, sets out that there will be an event of default upon “the entry by a court of competent jurisdiction of […] a decree or order […] seeking reorganization, arrangement of or composition of or in respect of […] the Company or a Significant Subsidiary.” (emphasis added).
While a scheme of the company or a significant subsidiary would trigger an event of default, a scheme could potentially be structured so that a new entity could accede to the 2021 notes solely for the purposes of procuring the scheme.
Some sources take the view that if the scheme was structured so that a new entity acceded to the 2021 notes solely for the purpose of a scheme, and then that new entity proposed a scheme, it would not be the issuer company or a significant subsidiary and therefore there would be no 2024 event of default.
An alternative view is that a scheme of a new entity would be a reorganization, arrangement or composition in respect of the company or a significant subsidiary. This would therefore trigger a 2024 event of default.
In any event, the opposing interpretations mean that if there is a scheme of the 2021 notes, there would likely be a challenge.
Another potential litigation route for the 2024s relates to the issuing of the €205 million new secured debt, which, according to representatives of the 2024s, exceeds the company’s current capacity to issue new secured debt.
Some of Intralot’s 2024 noteholders are in talks with the company but a new deal has not been agreed yet, sources said.
Reorg’s covenant analysis on the group’s ability to raise the secured debt is HERE.
Intralot proposed a debt restructuring deal on Jan. 14, which featured the exchange of €250 million of the 2021 subordinated notes into €205 million of senior secured notes due 2025 and a tender offer for the 2024 noteholders to swap part of their debt into up to 49% equity of the U.S. business of the group. The deal also features a stake of 18.7% stake in the U.S. business, cash fees in exchange for €68 million of the 2024 notes for cross-holders.
The 2024 ad hoc bondholder group said on Jan. 15 that it looks forward to engaging immediately with the company in connection with the proposed debt restructuring to determine whether the terms of a consensual restructuring transaction can be agreed.
As reported, an ad hoc group of Intralot’s 2024 noteholders could sue the Greek gaming group should it proceed with a J.Crew-style plan to transfer the U.S. business Intralot Inc. out of the 2024 notes’ restricted group and release its guarantee to implement its proposed debt restructuring.
The company has not commented in any detail on how it plans to implement the proposed deal but since it does not have more than €100 million of capacity for the restricted group to incur secured debt under the 2021 and 2024 notes, moving Intralot Inc. outside the restricted group could be an option. However, this is problematic as it would make the remaining 2024 notes structurally and contractually subordinated to the 2021 notes, when they are currently ranked pari passu.
The current proposal is depicted below:
-- Luca Rossi, Shan Qureshi
While some investors believe that the company could consider repaying the hold-out 2021 noteholders at par or leaving them outstanding, Reorg understands that neither option is very likely.
A scheme of arrangement remains as the back-up option although this could attract significant attention being a public process - something that the company is keen to avoid - and could trigger a possible challenge from the 2024 noteholders who believe the scheme would represent a cross-default under the 2024 indenture, sources said. The scheme process, in short, allows implementation of amendments to debt documents with the consent of just 75% of creditors per voting class.
The cross-default language in the 2024 notes indenture, which Reorg has seen, sets out that there will be an event of default upon “the entry by a court of competent jurisdiction of […] a decree or order […] seeking reorganization, arrangement of or composition of or in respect of […] the Company or a Significant Subsidiary.” (emphasis added).
While a scheme of the company or a significant subsidiary would trigger an event of default, a scheme could potentially be structured so that a new entity could accede to the 2021 notes solely for the purposes of procuring the scheme.
Some sources take the view that if the scheme was structured so that a new entity acceded to the 2021 notes solely for the purpose of a scheme, and then that new entity proposed a scheme, it would not be the issuer company or a significant subsidiary and therefore there would be no 2024 event of default.
An alternative view is that a scheme of a new entity would be a reorganization, arrangement or composition in respect of the company or a significant subsidiary. This would therefore trigger a 2024 event of default.
In any event, the opposing interpretations mean that if there is a scheme of the 2021 notes, there would likely be a challenge.
Another potential litigation route for the 2024s relates to the issuing of the €205 million new secured debt, which, according to representatives of the 2024s, exceeds the company’s current capacity to issue new secured debt.
Some of Intralot’s 2024 noteholders are in talks with the company but a new deal has not been agreed yet, sources said.
Reorg’s covenant analysis on the group’s ability to raise the secured debt is HERE.
Intralot proposed a debt restructuring deal on Jan. 14, which featured the exchange of €250 million of the 2021 subordinated notes into €205 million of senior secured notes due 2025 and a tender offer for the 2024 noteholders to swap part of their debt into up to 49% equity of the U.S. business of the group. The deal also features a stake of 18.7% stake in the U.S. business, cash fees in exchange for €68 million of the 2024 notes for cross-holders.
The 2024 ad hoc bondholder group said on Jan. 15 that it looks forward to engaging immediately with the company in connection with the proposed debt restructuring to determine whether the terms of a consensual restructuring transaction can be agreed.
As reported, an ad hoc group of Intralot’s 2024 noteholders could sue the Greek gaming group should it proceed with a J.Crew-style plan to transfer the U.S. business Intralot Inc. out of the 2024 notes’ restricted group and release its guarantee to implement its proposed debt restructuring.
The company has not commented in any detail on how it plans to implement the proposed deal but since it does not have more than €100 million of capacity for the restricted group to incur secured debt under the 2021 and 2024 notes, moving Intralot Inc. outside the restricted group could be an option. However, this is problematic as it would make the remaining 2024 notes structurally and contractually subordinated to the 2021 notes, when they are currently ranked pari passu.
The current proposal is depicted below:
-- Luca Rossi, Shan Qureshi
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