UPDATE 1: 12:03 p.m. ET 1/14/2021: Judge Broto of Madrid’s Court of First Instance No. 60 has reproached Spanish steelmaker Celsa for filing several claims with different courts on the same matter, according to a
ruling issued by the court on Monday, Jan. 11. As a result, Celsa was ordered to repay trial costs to opposing parties, the “jumbo” debt lenders.
Continue reading for the EMEA Core Credit by Reorg team's update on Celsa, and request a trial for access to more coverage of stressed, distressed and high-yield credits in the region.
Celsa filed a request for temporary precautionary measures with a Barcelona court on April 28, 2020, on behalf of group holdco Barna Steel SA. The court dismissed the request the following day, the ruling says. Two days later, the company filed the same motion with the Madrid court, adding other subsidiaries of the group to the request.
The requests made by Celsa to the two courts were slightly different, but had the common purpose of avoiding a default on payments and to postpone leverage ratio covenant obligations, the ruling says.
Judge Broto said that although the claims were different, both requests referred to the same debt agreement and to the same lenders, resulting “in no qualitative difference to the [first] request.”
The moratorium injunction had protected Celsa from default. The company asked the court to postpone principal and interest payments on the jumbo debt due on May 4, 2020, and Nov. 4, 2020, for the same dates this year.
The Spanish steelmaker also asked the court to sanction a moratorium on the requirement to comply with leverage ratios between April 1, 2020, and March 31, 2021. Finally, Celsa asked the court to bar the jumbo lenders from terminating the debt agreement and enforcing on the defaults (be it by requesting repayment or by executing the guarantees).
-- Laura Vilaça
Original Story 7:01 a.m. UTC on Jan. 14, 2021
Madrid Court Revokes Celsa ‘Jumbo’ Debt Injunction; Company Liable to Lender Enforcement Over Defaulted Payments, Plans to Appeal
Relevant Document:
April 2020 Moratorium Ruling (in Spanish)
Judge Jesús Antonio Broto Cartagena of Madrid’s Court of First Instance No. 60 has revoked an injunction temporarily postponing Celsa’s debt obligations to its “jumbo” lenders, sources told Reorg. As a result, the Spanish steelmaker is no longer protected against possible enforcement from jumbo tranche debtholders.
The
medidas cautelares prévias (temporary precautionary measures) on Celsa’s jumbo tranche were
granted by the Madrid court in April 2020, allowing the company to postpone a €35 million interest payment due May 4, 2020, and a further payment of about €100 million due on Nov. 4, 2020, to the same months of 2021. Following the latest court decision, those obligations plus some other costs - which come up to close to €180 million - are due and payable, sources said.
The judge announced the decision in a ruling dictated earlier this week, after the court heard parties in a session held on Friday, Jan. 8, sources said. Celsa was represented by Cortes Abogados, while Gómez-Acebo y Pombo was the jumbo lenders’ legal counsel.
Judge Broto’s decision to reverse the injunction was based on the legal doctrine of
cosa juzgada (claim preclusion), which does not allow relitigation of a claim involving the same matter and the same parties that was previously settled by another court, sources explained. In this case, Celsa had filed a temporary injunction moratorium claim with different courts in Barcelona and was denied the request, and so proceeded to file the same application with courts in Madrid.
It is unclear if Judge Broto’s decision will also extend to the moratorium measures currently in place for Celsa’s “convertible” debt, sources said. The convertible debt case is
before Madrid’s Court of First Instance No. 67 and a hearing on the matter has not been scheduled yet.
Celsa will file a request to reverse Judge Broto’s order, sources said. A decision on such an appeal may take months, sources added, and in the meantime Celsa will buy time to find a solution to its liquidity issue.
The issue of solvency is a key element in Celsa’s current quarrel with creditors, as the company’s lenders claim that Celsa was insolvent and was not able to face its debt obligations even before the Covid-19 pandemic hindered the business, as
reported.
On the other hand, the company
said that the impact of the Covid-19 pandemic on its business has implied a loss of at least €144 million in revenue, a 45% decrease in the group's operating income and a cash position at the end of April of €60 million (instead of the expected €83 million).
Celsa has
requested financial aid of about €350 million from the Covid-19 fund of the Spanish state-owned industrial holding company
Sociedad Estatal de Participaciones Industriales, or SEPI. The process is currently at an advanced stage and the company may receive the funds in the coming months, sources said.
Negotiations with lenders are stalled meanwhile, as the parties remain unable to reach an agreement, sources said. Celsa hopes the SEPI funding will give it more leverage in the talks with creditors and not force it to accept a refinancing proposal advanced by lenders.
Jumbo lenders including Sculptor Capital Management, CVC, Goldentree and Canyon,
proposed converting close to €700 million of debt into 49% of Celsa’s share capital. The plan would leave Celsa’s majority shareholders, the Rubiralta family, with a 51% stake in the company.
The company does not agree with the plan, which also includes a new bonding line that would be due in five years and would carry a 12% interest. This would leave lenders holding 90% of Celsa’s share capital once the line matures,
El Confidencial reported on Wednesday, Jan. 13.
In parallel, Celsa and its lenders are
embroiled in a disagreement over a possible breach of the company’s leverage ratio covenant under its loans. The company went over its 4x leverage ratio in the second quarter of 2020 and it is unclear whether it breached it in the third quarter. If the company was able to cure the breach by the end of October 2020 then it would not be in breach of its leverage ratio covenant.
Celsa exceeding the leverage limit twice in a row would enable lenders to enforce a debt-for-equity swap that would result in a creditor takeover of the holding company of the group, but not necessarily the opco entities.
-- Laura Vilaça