Concordia sets precedent for LBO restructurings

Concordia Bus (CB Bus) stakeholders have agreed a deal to pave the way for the restructuring of the Swedish bus maker. Negotiations have dragged on since January, when the company first engaged in talks with lenders and an ad-hoc committee of subordinated bondholders put forward a debt-for-equity restructuring plan.

After months of fighting for a make-whole, a deal was clinched on July 13. Senior bondholders gave up their battle and accepted an offer to be taken out at 104 plus accrued interest.

“The precedent from this deal is important,” said one restructuring professional. Those involved said the equity sponsors, Goldman and Schoyen group, had been very helpful and gave the board the freedom to do what was needed to facilitate a restructuring. Others said that Goldman was simply out of the money.

The deal includes an immediate equity injection of €45m by a group of subordinated bondholders to bridge the company through the restructuring. This will also ensure enough liquidity to pay fees. As part of the deal, however, the equity sponsors had to give up their initial equity portion post-restructuring, and will now get only 2.5% to split between them.

Subordinated bondholders will get 97.5% of the emerging equity in exchange for buying up the debt and fully equitising the sub bonds.

The equity injection will be treated as mezzanine at the subordinated CB Bus level, but as equity at Concordia Nordic. The mezzanine facility has been sourced from principal raised among the group of hedge funds and will pay a coupon of 13% over Euribor. The company’s facilities will be amended to allow it cashflow to service this facility.

The subordinated bond committee is the new owner of the company with a task ahead of turning it round. The group is led by funds Avenue Capital, Bear Stearns, Bluebay, Fidelity, Henderson, Lone Star and Thames River. The senior

bond committee was led by Centaurus, Citigroup and JP Morgan.

Senior note holders decided to book the gain so they could spend their time pursuing other opportunities. The seniors, who account for more than 50% of the outstanding €130m of senior secured notes dated 2009, will tender their bonds in a consent solicitation process expected to be launched as early as this week.

The seniors and their advisers spent months trying to negotiate a deal either to take them out with a make-whole, or agree on amendments to the indentures to strengthen the seniors’ position and security. The restructuring offer first put forward in March proposed carve-outs that could have led to possibly hundreds of millions of Swedish kronor being raised ahead of the senior notes.

The senior notes will now mostly be held by the subordinated bond group, no changes will be made to the notes and they will remain outstanding. The subs have amassed a large cross holding of about 40% of the senior notes, which the group expects to trade back into the market post-restructuring. It is not known how many of the remaining 9% of the unrestricted senior bonds will be tendered.

The committee had long believed they could ask for a make-whole agreement, believing that ultimately if a consensual deal was not agreed the seniors would get 100% of the equity under Swedish bankruptcy law. The group asked in addition for an increase to the coupon, a change of control option at 110, a three-point consent fee among other changes to covenants to strengthen their position should they stay in, said sources close to the transaction.

The subs won through in the end after both sides lost patience with how long the deal took.