Creditors welcome ‘well crafted’ Ineos reorg plan

Senior lenders to Ineos will back the thrust of the company’s rescue plan but may demand further concessions or clarifications before the deal completes.

Last week Ineos presented a debt revision plan to senior lenders, aimed at allowing the company to keep its leverage in place with reset covenants and a revised five-year business plan, and for shareholders to retain all of their equity. In exchange, lenders get enhanced credit protection and increased margins and fees. Ineos has €7.2bn of outstanding debt facilities.

One creditor, who broadly welcomed the deal, cautioned that it would need to be looked through carefully before being signed.

“The proposal looks to be well crafted, but it may still need some tweaking before it is finally agreed,” he said.

Lenders have until July 15 to vote on the proposal, and their agreement is now likely.

A “sounding group” or ad hoc committee of Ineos’s senior lenders has already backed the deal. One adviser to the company said the sounding group represented a “high 20s percentage” of senior debt and is highly representative of the senior lender group, which includes about 135 funds.

The seven members of the sounding group are Barclays, Merrill Lynch and Lloyds and institutional investors Alcentra, Carlyle, Harbourmaster and Eaton Vance.

“The senior lenders are mainly CLO-type investors and banks – the deal was too big for any distressed guys to try to build up a blocking stake,” the adviser said.

The debt restructuring deal on the table significantly enhances lender muscle. From September it will reintroduce reset debt covenants testing leverage, interest cover and debt service cover.

As well as re-imposing those existing covenants the deal introduces a new minimum liquidity covenant, further enhancing creditor comfort, and, under a new treatment of asset disposals, proceeds will be used for a mandatory pre-payment of debt once cash on the balance sheet exceeds US$750m. Disposal proceeds can currently be reinvested into the business.

In exchange for agreeing the deal senior lenders will gain a 100bp consent fee, half to be paid on consent and half either in a year or following an asset disposal. Lenders will also gain a 200bp margin increase across all tranches, paid in PIK, and euro lenders gain a 300bp Euribor floor, again to be paid in PIK.

The innovative Euribor floor was welcomed by European lenders, who hope it becomes a precedent for future primary leveraged deals as well as debt restructurings. Libor floors, which limit how low interest can fall, are already established in the US and creditors to Ineos’s US dollar debt already benefit from the feature.

The use of PIK to finance increased costs incurred under the new structure has also won support from lenders because it allows for enhanced margins without affecting Ebitda.

Bondholders get nothing under the terms agreed. Ineos was not in default on its bonds, but holders benefited from a lift in secondary prices from 22 to 30/31 after news of a deal emerged today. Bonds were as low as 7/8 in April.

Lazard and North Sea Partners are advising the company on the deal, the creditor sounding group is being advised by Houlihan Lokey.