Wirecard AG
Wirecard Risks Event of Default on RCF Unless Waived; 2019 Financials Reporting Deadline Today; Company in Talks With Lenders for Credit Lines Continuation
Fri 06/19/2020 10:09 AM
Relevant Document:
2024 Bond Offering Memorandum
German payments company Wirecard risks triggering an event of default under its syndicated RCF facility unless it presents its consolidated 2019 financial statement by the end of today or it achieves a waiver from the RCF lenders. The publication of the company’s accounts was delayed as auditor Ernst & Young said yesterday that it could not find sufficient evidence of cash balances on trust accounts for €1.9 billion, which is about a quarter of the group’s consolidated balance sheet figure. Sources said they believe the company is facing a possible restructuring.
Wirecard has confirmed it is in talks with lenders regarding the continuation of the credit lines and the further business relationship. At least 15 of the company’s commercial lenders led by Commerzbank AG, ABN Amro, LBBW and ING, are negotiating their next steps and may be seeking external advice, according to press reports.
Yesterday, June 18, the company said loans made to Wirecard amounting to about €2 billion can be terminated if the certified annual and consolidated financial statements cannot be made available until June 19, 2020.
Analysts Reorg spoke to said they are struggling to understand what the €2 billion refers to and whether it relates to the company's €1.75 billion RCF, or to some additional facilities of the group, or to its whole debt. Several sources said the company has a second €725 million unsecured RCF due 2021, which was not disclosed in the company’s reports as of Sept 30, 2019.
Uncertainty about the company’s actual EBITDA number is puzzling distressed debt investors who are trying to assign a multiple to the business given the low trading levels of its bonds.
The outstanding debt of the group as of the last reported financial on Sept. 30, 2019 is below:
According to sources and Reorg’s analysis, the company’s RCF ranks pari passu with its €500 million 2024 bonds, which are both unsecured and guaranteed by five guarantors: Wirecard Technologies GmbH, Wirecard Sales International Holding GmbH, Wirecard Payment Solutions Holdings Ltd., CardSystems Middle-East FZLLC and Wirecard Processing FZ-LLC. On the other hand, sources said the group’s €900 million convertible is only guaranteed by the issuer - the management board was authorized, with the consent of the supervisory board of the issuer to grant such guarantee.
The bonds are quoted at 26/33, while the convertible is indicated at 10/17, sources said.
The group reported a cash balance of €3.287 billion as of Sept. 30, 2019, which had €1.719 billion of cash from customer deposits. There is not enough evidence of €1.9 billion of the cash balance in trust accounts.
According to the OM for Wirecard’s €500 million notes due 2024, the €1.75 billion RCF contains customary events of default provisions that allows lenders to make the facility due and payable with the consent of 66 2/3%, or two-thirds of lenders representing the total commitments. The events of default provisions include a material adverse change clause too.
The bond documentation also notes that the cross-acceleration clause in the terms and conditions of the notes is limited to capital markets indebtedness. Hence, a default of the group under its current financing arrangements will not allow holders to accelerate the notes.
“Therefore, holders are exposed to a structural subordination compared to other lenders of the group since the notes provide for more restrictive events of default and limited covenants compared to other financing arrangements of the group.” The RCF agreement is governed under German law.
In a statement delivered via YouTube last night, management said that two banks taking over trustee accounts this year have presented auditors with incorrect balance confirmations for fraudulent purposes. They added “it is unclear why the banks have stated to the auditor that the confirmations are spurious.”
Management added that “it can not be ruled out that Wirecard AG has become the aggrieved party in a case of fraud of considerable proportion.”
The company said yesterday in a notice that there are “indications that spurious balance confirmations had been provided from the side of the trustee respectively of the trustee's account holding banks to the auditor in order to deceive the auditor and create a wrong perception of the existence of such cash balances or the holding of the accounts for to the benefit of Wirecard group companies.”
According to another company notice, the auditor said an audit certificate for the annual financial statements for fiscal year 2019 requires additional audits. This is due to recent communications from the two banks that have been managing the escrow accounts since 2019, according to which the account numbers in question could not be assigned.
The respective subsidiaries of Wirecard AG have paid substantial security deposits totaling €1.9 billion into these escrow accounts in order to guarantee risk management for participating merchants. The banks managing the escrow accounts are two Asian banks with investment grade ratings.
This morning, Markus Braun resigned as Wirecard CEO and James Freis was appointed as interim CEO.
According to provisional figures disclosed in the company’s second notice from yesterday, transaction volume in its 2019 reporting year was €173 billion while group revenue was €2.8 billion. EBITDA increased 37.8% to €772.3 million in 2019 from €560.5 million in the previous year, while free cash flow from operating activities (adjusted) rose 37% year over year to €580.8 million from €423.9 million. Earnings after taxes increased to €482.4 million in 2019 from €347.4 million in 2018, which corresponds to earnings per share (undiluted) of €3.90, up from €2.81.
--Connor Lovell, Luca Rossi
2024 Bond Offering Memorandum
German payments company Wirecard risks triggering an event of default under its syndicated RCF facility unless it presents its consolidated 2019 financial statement by the end of today or it achieves a waiver from the RCF lenders. The publication of the company’s accounts was delayed as auditor Ernst & Young said yesterday that it could not find sufficient evidence of cash balances on trust accounts for €1.9 billion, which is about a quarter of the group’s consolidated balance sheet figure. Sources said they believe the company is facing a possible restructuring.
Wirecard has confirmed it is in talks with lenders regarding the continuation of the credit lines and the further business relationship. At least 15 of the company’s commercial lenders led by Commerzbank AG, ABN Amro, LBBW and ING, are negotiating their next steps and may be seeking external advice, according to press reports.
Yesterday, June 18, the company said loans made to Wirecard amounting to about €2 billion can be terminated if the certified annual and consolidated financial statements cannot be made available until June 19, 2020.
Analysts Reorg spoke to said they are struggling to understand what the €2 billion refers to and whether it relates to the company's €1.75 billion RCF, or to some additional facilities of the group, or to its whole debt. Several sources said the company has a second €725 million unsecured RCF due 2021, which was not disclosed in the company’s reports as of Sept 30, 2019.
Uncertainty about the company’s actual EBITDA number is puzzling distressed debt investors who are trying to assign a multiple to the business given the low trading levels of its bonds.
The outstanding debt of the group as of the last reported financial on Sept. 30, 2019 is below:
The bonds are quoted at 26/33, while the convertible is indicated at 10/17, sources said.
The group reported a cash balance of €3.287 billion as of Sept. 30, 2019, which had €1.719 billion of cash from customer deposits. There is not enough evidence of €1.9 billion of the cash balance in trust accounts.
According to the OM for Wirecard’s €500 million notes due 2024, the €1.75 billion RCF contains customary events of default provisions that allows lenders to make the facility due and payable with the consent of 66 2/3%, or two-thirds of lenders representing the total commitments. The events of default provisions include a material adverse change clause too.
The bond documentation also notes that the cross-acceleration clause in the terms and conditions of the notes is limited to capital markets indebtedness. Hence, a default of the group under its current financing arrangements will not allow holders to accelerate the notes.
“Therefore, holders are exposed to a structural subordination compared to other lenders of the group since the notes provide for more restrictive events of default and limited covenants compared to other financing arrangements of the group.” The RCF agreement is governed under German law.
In a statement delivered via YouTube last night, management said that two banks taking over trustee accounts this year have presented auditors with incorrect balance confirmations for fraudulent purposes. They added “it is unclear why the banks have stated to the auditor that the confirmations are spurious.”
Management added that “it can not be ruled out that Wirecard AG has become the aggrieved party in a case of fraud of considerable proportion.”
The company said yesterday in a notice that there are “indications that spurious balance confirmations had been provided from the side of the trustee respectively of the trustee's account holding banks to the auditor in order to deceive the auditor and create a wrong perception of the existence of such cash balances or the holding of the accounts for to the benefit of Wirecard group companies.”
According to another company notice, the auditor said an audit certificate for the annual financial statements for fiscal year 2019 requires additional audits. This is due to recent communications from the two banks that have been managing the escrow accounts since 2019, according to which the account numbers in question could not be assigned.
The respective subsidiaries of Wirecard AG have paid substantial security deposits totaling €1.9 billion into these escrow accounts in order to guarantee risk management for participating merchants. The banks managing the escrow accounts are two Asian banks with investment grade ratings.
This morning, Markus Braun resigned as Wirecard CEO and James Freis was appointed as interim CEO.
According to provisional figures disclosed in the company’s second notice from yesterday, transaction volume in its 2019 reporting year was €173 billion while group revenue was €2.8 billion. EBITDA increased 37.8% to €772.3 million in 2019 from €560.5 million in the previous year, while free cash flow from operating activities (adjusted) rose 37% year over year to €580.8 million from €423.9 million. Earnings after taxes increased to €482.4 million in 2019 from €347.4 million in 2018, which corresponds to earnings per share (undiluted) of €3.90, up from €2.81.
--Connor Lovell, Luca Rossi
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