ISS bondholders last week sent a letter to the company’s board of directors announcing their intention to start legal proceedings in the UK against the new owners of the company unless they receive assurances within seven days that the senior debt required to fund the takeover will not subordinate existing 2010 and 2014 bonds. These bonds were changing hands at 90-1/2–91-1/2 and 80-1/2–81-1/2 respectively early last Friday.
EQT and Goldman Sachs Capital Partners launched a DKr22bn (US$3.56bn) unsolicited bid for the Danish cleaning company in March through acquisition vehicle PurusCo. The bid saw ISS’s 2010s slump by around 15% and its 2014s collapse by 25%, and a multiple-notch ratings downgrade to junk. The existing bonds will not be redeemed as part of the LBO financing, but instead added to the company’s debt pile.
The latest development comes after GS and EQT wrote to the Danish Stock Exchange saying they would not seek financing guarantees from the group’s subsidiaries, indicating that the existing notes will not be subordinated to the new bank debt. The letter also said that final details of the financing structure were still to be determined, and disgruntled bondholders are now seeking further disclosure on any debt to be issued elsewhere in any proposed capital structure.
“Specifically, the bondholders are seeking assurances that the new senior debt financing will not contravene the negative pledge in the existing bonds,” the bondholders said in a statement. The negative pledge prohibits ISS Global and its principal subsidiaries from giving security for tradable debt, unless the same security is given to the bondholders. The negative pledge does allow ISS Global to raise some forms of secured debts, but not debt that is tradable. ISS said it would contest any legal action brought by the bondholders.
“There has also been a refusal to talk to the bondholders about the financing and we find this suspicious,” said one person close to the bondholder group.
Goldman Sachs and Citigroup are leading the financing, which indicates total debt of about DKr23bn (DKr6.2bn of secured loans to repay existing debt and dividends, a DKr5.5bn partly-committed acquisition facility, a circa DKr5bn revolving credit for general corporate purposes and a cash bridge of DKr2.38bn). The MLAs are out to sub-underwriters on the senior debt, said bankers.
The bondholders have also indicated that they might consider legal proceedings in the Danish courts challenging any intent to grant Danish or non-Danish subsidiary guarantees to acquisition debt pushed down to operating companies or any debt issued by any related subsidiary of ISS Holding that is used to replace PurusCo’s debt. ISS, whose bonds are bound by English law, has nominated the English courts as the jurisdiction of choice for disputes.