Selecta Senior Secured Bondholders Hire Perella Weinberg as Financial Advisor; Noteholders Include Robeco, Capital Four, M&G

Relevant Document:
Covenant Report 2024 Notes

Swiss vending machine company Selecta’s senior secured bondholders have mandated Perella Weinberg Partners as their financial advisor, sources told Reorg. The group consists of a mix of bonds across the 2024 maturities and a mandate for legal advisors is expected in the coming weeks.

Current noteholders include Robeco, Capital Four and M&G.

The company will likely need new money if it experiences significant EBITDA erosion in 2020 due to the effects of the Covid-19 pandemic, sources told Reorg.

All of Selecta’s 2024 senior secured bonds, including its FRN and Swiss franc notes, are quoted at about 28/32.

Selecta previously mandated PJT and Kirkland & Ellis as financial and legal advisors ahead of potential debt restructuring negotiations.

Value is expected to break high in the senior notes. Sources expect recovery on the notes in the range of 30% to 65%.

The group reported unexpectedly weak results for the quarter ending Dec. 31. In a recent note, JP Morgan said it expected the group to burn €160 million in free cash in 2020 with sizable working capital outflows in the second calendar quarter. Moody’s also expects Selecta to experience significant deterioration in its liquidity position on the back of a severe contraction in sales volume.

Covenant analysis on the 2024 notes is available HERE on the issuer deal page where you can find analysis, offering memorandums and general information on the notes.

Selecta's capital structure is below:
 
KKR’s March 2020 €50 million facility has exhausted super senior debt capacity under the bond documentation. Bondholder consent at 50% would be required for the group to amend the restrictive covenants to allow itself to incur new super senior debt - a likely requirement for new lenders. KKR therefore has a position at both the top (as a super senior lender) and the bottom (as shareholder) of the capital structure. Sources suggest that KKR may also have had a position in the RCF, prior to agreeing the new €50 million facility.

The notes’ OM describes how creditors can form a group to instruct the security agent to take enforcement action (following an accelerated default by the group). The instructing group can be formed by either: (i) the majority of senior secured creditors (being noteholders and other senior lenders ranking pari passu with the noteholders); or (ii) creditors holding more than 50% of the total participations in super senior liabilities (being the RCF lenders, KKR as lender of the new €50 million facility and certain hedging lenders) at that time. The security agent  is required to act in accordance with instructions received from the majority senior secured creditors, however: (i) if the obligations under the super senior liabilities have not been fully discharged in cash within six months of enforcement instructions first being issued by either the majority senior secured creditors or the majority super senior creditors; or (ii) if security agent has not commenced enforcement action within three months of enforcement instructions first being issued by either the majority senior secured creditors or the majority super senior creditors, then the enforcement instructions provided by the majority super senior creditors will prevail

In practice, this means that although KKR holds at least 25% of the super senior liabilities (discounting hedging lenders) it would not have enough of a holding by itself to instruct the security trustee to enforce, or to block an enforcement, unless its existing position in the RCF was over €50 million. Further, the SSNs could instruct the security agent to enforce, following a default, without the need for the super senior creditors’ consent. This means KKR’s RCF holding does not give it complete control of any possible future enforcement process.

The company is due to report its first-quarter results at 2 p.m. BST on Monday, May 25.

-- Jaishree Kalia, Connor Lovell, Aurelia Seidlhofer