Wed 05/03/2023 07:37 AM
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Relevant Documents:
First Lien Notes Indenture
2L SPV Notes Indenture
Intercreditor Agreement

Lycra’s refinancing of its 2023 euro notes features a drop-down transaction aimed at bolstering the new notes’ credit quality, sources told Reorg.

The spandex maker said Monday, May 1, it issued new €300.2 million 16% 2025 notes - at a 20% original issue discount of €240 million - to repay its €250 million 5.375% 2023 notes, which were set to mature that day, as reported. The remaining €10 million came from upsizing Lycra’s term loan.

But Lycra will also drop down $75 million of intellectual property assets to new, unrestricted subsidiaries to secure them against the new notes, according to sources and a notice to bondholders seen by Reorg.

The drop-down is made possible through $80 million available under Lycra’s $704.5 million 7.5% 2025 notes indenture, which features $50 million from a restricted payment basket and $30 million from a restricted investment basket.

An ad hoc group of 2023 euro noteholders advised by Gibson Dunn drove the refinancing, working with Lycra’s shareholders. Sources said the euro ad hoc group, or AHG, had considered a bigger drop-down, but settled on $75 million as an amount they say cannot be challenged, because it is permitted under the indenture.

The euro AHG and other investors bought the new €300 million 2025 notes through Linx Capital Ltd., a special purpose vehicle. Linx Capital financed this by raising €211.4 million of 15.2% first lien notes and €42.1 million of 20% second lien notes.

Some sources believe the deal’s structure means Linx’s new first lien notes are covered even in the event of a significant haircut on the €300 million principal, owing to a combination of the 20% discount they paid, the presence of the subordinated second lien tranche, and the right to enforce on the dropped-down $75 million IP assets.

Lycra’s ad-hoc group of 2025 dollar noteholders, advised by Milbank, left the debt talks in March. It had sought in past months to take control of the business, impose a haircut and wipe out Lycra’s shareholders, as reported.

Sources said the new money investors fare better under the refinancing deal than they would have under an equitization, in which the dollar holders would have got most of the equity since their share of the $700 million notes was bigger than the old outstanding €250 million notes.

The dollar AHG holds a large majority of the 2025 dollar notes and just over half of the euro notes, sources said.

The refinancing leaves this group’s total debt claim smaller, since Lycra’s cap stack maturing in 2025 now comprises the $700 million bonds, the €300 million bonds (up from €250 million) and the new accruing super senior term loan, which now stands at $140 million and may increase because of payments in kind.

–Declan Bush
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