German autoparts supplier Honsel has agreed a comprehensive restructuring built around a debt for equity swap and radical writedown of debt from €510m to €140m.
Goldman Sachs is acting as sole financial adviser to the company. Latham & Watkins advised a steering committee of senior lenders on the deal.
Under the plan now agreed, sponsor RHJ International will invest €50m into the business in exchange for retaining a 51% equity stake. A super senior debt facility of €40m is not affected by the restructuring but the remaining €510m of secured debt will be reduced to just €140m, made up of new senior and mezzanine tranches.
Existing senior lenders will take a 49% stake in the business in exchange for writing down their more than €300m of senior debt to the new €140m total. Existing mezzanine and PIK lenders receive nothing under the restructuring.
A key element of the deal is that it was agreed consensually, outside the German courts system and under the existing loan documentation.
The consensual execution of the debt for equity swap was possible because of the priority agreement in place at Honsel, which allowed the deal to go ahead with majority rather than unanimous consent from lenders in each tranche of debt.
Out-of-the-money subordinated debtholders had limited hold-out potential given the obvious distress at the credit, and in the sector in general, according to a source involved in the deal. A significant portion of junior debt was held by investors with cross-holdings in the senior facilities who supported the restructuring, and voted with the majority across tranches.
All consents have now been obtained and all parties have now entered into a lock-up agreement to press ahead with the closing of the restructuring, which is set to complete within the month. Honsel’s performance declined dramatically in the fourth quarter 2008 and a standstill agreement with lenders has held since December last year.
The 2007 deal put in place €480m in facilities, made up of €355m of senior secured facilities paying 375bp over Euribor, €75m of mezzanine facilities paying 425bp cash and 600bp PIK, as well as €70m of PIK facilities. It was followed by an add-on acquisition financing with a further €40m of senior secured and €15m of mezzanine.
The 2007 deals were placed mainly with a group of hedge funds brought into the stressed situation as a relative value proposition.
Coupons on the new senior and mezzanine tranches have been increased, though not dramatically given the continued strain in the sector and lack of visibility on Honsel’s trading outlook.