Mon 06/22/2020 13:11 PM
Relevant Item:Creditors Skeleton
McLaren has applied to the High Court in England for guidance and declaratory relief as to the interpretation of the covenants in its senior secured notes. The company is seeking court blessing to incur new indebtedness secured on its heritage assets (including the group’s collection of F1 racing cars) and its Woking plant, potentially using a sale-and-leaseback transaction.
Certain of the group's noteholders have applied to be party to the application, resisting the group’s proposed borrowing. The group and the noteholders have completed the case management conference stage of the litigation, with the substantive three-day hearing due to commence within the next two weeks.
The proposed borrowing requires a release of certain security by the security agent which had been previously granted in favor of the group’s senior secured notes. The provisions of the group’s indenture set out that the company must certify that the proposed borrowing transaction is compliant with the provisions of the group’s covenants. The company had appeared in court for a case management conference on Friday and appeared again today. Justice Zacaroli said today that the company would provide draft transaction documents for the proposed borrowing by 4 p.m. BST tomorrow.
The parties would also be submitting valuation evidence in respect of the F1 racing cars and the Woking plant as part of the substantive hearing. The valuation was needed so that the court could decide whether the transaction envisioned by the proposed borrowing transaction constituted a disposal of “all or substantially all of the group’s assets,” which would have been a contravention of the terms of the indenture.
The company explained that it expected to run out of money by July 17 and therefore required a judgment by July 10. The company had argued for the application to be heard on an expedited basis, a point on which the noteholders were neutral. The company explained to the court that it had “no plan B” to the proposed borrowing application.
The group’s creditors, who have been granted permission to join the company’s hearing, oppose the application. The creditors have hired Paul Hastings to resist the fundraising, with Boies Schiller acting as the creditors’ litigation counsel. The company is represented by Ashurst and Tom Smith QC (of South Square). The hearing is expected to be heard on an expedited basis, likely to be heard within the next two weeks.Reorg’s analysis on the group’s ability to incur indebtedness and possibly use a version of the J.Crew structure, can be found HERE. Reorg’s full analysis on the restructuring options available to the group can be found HERE.
McLaren is negotiating with its shareholders, lenders and advisors to secure £275 million of funding to solve a severe liquidity squeeze brought on by Covid-19 and associated lockdowns. The restrictions forced the company to shut down its only manufacturing facility beginning in March, along with most of its global dealership network, leading to wholesale volume reduction of 68% during the first quarter, which in turn caused severe cash burn.