Law firm Kirkland and Ellis is urging Wirecard’s bondholders to organize quickly and to engage actively to make their voices heard in the insolvency process. During a bondholder call held this afternoon, the lawyers proposed a three-point strategy. Firstly, bondholders should aim to have a representative on the creditors’ committee. Secondly, to preserve value in the four subsidiaries that act as guarantors to both the bonds and the RCF. The aim is to avoid the guarantors filing for insolvency in an uncoordinated fashion, which could be value-destructive. Finally, bondholders should consider angles for possible litigation.
Bondholders were told that the initial preliminary insolvency period will last around three months. Michael Jaffé has been appointed as an expert, but not as a full administrator. Leo Plank, partner at K&E, explained that this is a slightly unusual deviation from normal practice. As a result, Wirecard continues to be run by the recently appointed management team unless the insolvency court has imposed additional protective measures on the governance of the company. Notably, the insolvency filing has removed any concerns that the company might unfairly grant collateral to other existing debt holders.
K&E have advised noteholders to create an ad hoc group to support a single candidate for the creditor’s committee. The candidate must be a material noteholder. The process to appoint a common representative (under German law) for the bonds will begin afterwards as it can take some time. “It is important to have an ad hoc group first before important decisions are made by administrators,” Plank said, as all material transactions made by administrators need to be approved by the creditors committee.
As noted by Reorg, under the terms of the 2024 bond
indenture, an initial joint representative or
gemeinsamer Vertreter was not appointed. The representative is similar to a trustee under U.S. bond law but differs in some material respects. The indenture warned that without a bondholder representative “it is more difficult or even impossible for holders to take collective action to enforce their rights.”
Plank added that one typical way to gain influence in an international insolvency is to offer new money. He said that any new money requirement is unknown at present, however they would advise bondholders to participate in a debtor-in-possession, or DIP, financing if necessary.
As per the second objective, K&E intend to reach out to the RCF holders to discuss the guarantor companies. A key consideration for the directors of these companies and their decision to follow Wirecard AG and also file for insolvency is whether or not RCF holders will accelerate their claims. Ideally K&E would aim for a consensual strategy with RCF lenders to keep the companies operating by providing directors with letters of comfort.
Asked by one noteholder how easy it will be to prevent this given the change in the composition of the RCF lenders as a result of secondary trading, Plank said that it would not be easy but they have to try.
K&E intends to hold a further call next week to explore avenues for litigation against the company. Claims could be based on negligence, criminal conduct or breach of capital markets laws. Any claims against Wirecard’s auditor, EY, will be filed by administrators. Bondholders cannot litigate directly on that matter.