DealZone Daily
British Petroleum is bidding on a package of Devon Energy assets that the US energy company put up for sale late last year, sources familiar with the matter told Reuters. The company is looking at Devon’s position offshore Brazil, as well as Gulf of Mexico and Canadian assets, one source said. There could be around six other bidders as well as the British oil major. Read the story here.
And in news reported by other media on Thursday:
Dubai World will present its first concrete proposals to local banks on Thursday on restructuring $22 billion of debt, The National newspaper reported, citing unnamed sources. The state-owned conglomerate has requested meetings with Emirates NBD and Abu Dhabi Commercial Bank to present its proposals.
Battered car-makers rounding blind corner
(Update: This piece was written, as several commenters have pointed out, before GM clinched a sale of Saab to Spyker on January 26.)
By Quentin Carruthers
(Acquisitions Monthly) Automakers face a demand slump in Europe and the longer-term challenge of addressing climate change. Both pressures are expected to lead to further restructuring, consolidation and M&A activity.
The North American International Auto Show, held each January in Detroit, Michigan, is just coming to an end. Detroit is the hometown of America’s “Big Three” automobile makers – Ford, General Motors, and Chrysler – and the show constitutes one of the most important events in the industry’s calendar.
Touring the floor with a group of her fellow Congressmen was Nancy Pelosi, Speaker of the House of Representatives, who told reporters: “We came to listen, to learn, to observe, to measure, to judge what has happened to the investment that we made.”
US state investment includes US$60bn of government loans to support automotive assemblers, in return for control of GM and a minority stake in Chrysler, both of which came out of Chapter 11 bankruptcy proceedings in mid-2009. A further US$3.5bn has been used to support parts suppliers, and US$3bn to support car retailers.
Total state support equates to a loan of more than US$50,000 for each job in the manufacturing side of the industry, as calculated by Philip Wylie, director and automotives leader at restructuring adviser Houlihan Lokey.
Saab WILL survive. Spyker purchased Saab from GM last month…. come on guys GET WITH IT!!! Embarrassing.
Noted: 5-year funk means no office firesales
Despite a looming wave of defaults, sell-offs of European offices at knock-down prices are unlikely, because commercial property prices are likely to tread water for years, rating agency Moody’s says.
in a report on the region’s commercial mortgage-backed bond market, Moody’s said it expects more loan defaults, but doesn’t think commercial property values will “materially recover” for the next five years. (Reuters report here.)
This means that special servicers — the administrators responsible for deciding the future of bust securitisations — “will not pursue immediate sale of the properties … but rather continue to collect the rental cash flows where possible and dispose of the properties under more favourable conditions, which may reduce ultimate losses,” the agency said.
Some foreign buyers have not been put off, with South Korea’s National Pension Service spending 268 million pounds on a pair of prime London office buildings.
Lenders quiet on Yell support
For Yell, the publisher of Britain’s Yellow Pages directories, there is a world of difference between 90 and 95 percent.
The lower figure is the amount of lenders backing its debt financing plan, the higher figure is the amount it needs. If it falls short of its target this evening, the company may need to go to the court to push through a deal.
(News story here.)
The proposals are vital to the heavily indebted company’s short-term future, allowing it to rejig its capital structure and tap equity investors for up to 500 million pounds.
However, the size of the company’s lender group – 300 banks and funds – is working against it. Trying to get all the lenders signed up to the debt deal has been as difficult as herding cats, bankers say.
Going to the courts for approval can be lengthy and expensive, lawyers say. For Yell, a court case may mean they will miss tapping the equity markets before the end of the year. This will disappoint, as the equity markets have backed a range of weak companies in recent weeks, such as HeidelbergCement and Ladbrokes.
Yell may need to hope their generous spirit continues into the new year.
Die Hard (with a vengeance)
American actor Bruce Willis is probably best known as the all-action hero in the Die Hard films, fighting evil-doers against all the odds.
But in France, Willis looks to be a new shareholder in French vodka maker Belvedere, maker of Poland’s Sobieski vodka. Earlier this year Willis signed a multi-year deal to promote Sobieski.
Like Willis, Belvedere is no stranger to battles, having been through a two-year-long court fight with its bondholders. The bondholders — many of whom are hedge funds — want to be repaid and would accept a forced sale of the company to get their cash back. Belvedere disagrees and has proposed a debt restructuring plan that would see them paid back over years.
Mediating between the battling groups are the French commercial courts, who must interpret recently introduced ‘sauvegarde’ rules.
Lawyers say the economic crisis means courts are sympathetic to the French companies and often refuse to support lenders seeking to take control of struggling businesses’ assets. Read here for more details.
A court ruling on Nov. 10 will see whether Belvedere bondholders will be forced to accept delays in being repaid. Bondholders say the company’s plans are “unreal” while Belvedere thinks the lenders are only interested in breaking up the company for their own gain.
Many financiers will watch closely to see which way the court rules. But given the direction of recent court cases, few expect Belvedere to need Bruce Willis to force their point.
Icahn takes a shot at CIT “Tammany Hall” financing
As if CIT didn’t have enough problems digging itself out of a credit morass, now it has Carl Icahn to contend with. Troubled by what he sees as sweetheart deals between CIT and its largest creditors, at the expense of the little-guy bondholder, Icahn has offered to underwrite the $6 billion the small-business lender says it needs to survive. Icahn’s offer sent CIT shares soaring by double digits … to well above a dollar.
In a letter to CIT’s board, Icahn said certain large bondholders are being offered an opportunity to purchase secured loans at prices well below their fair market value.
In the end, Icahn underwriting offer may serve more as a publicity stunt than a White Knight vanguard attempt to save CIT, which is busy searching for a new CEO — presumably, a restructuring artist.
A week ago CIT CEO Jeffrey Peek told the company he would retire, thumbing his nose at a fresh one-year contract renewal and firming up market expectations that the company would soon seek bankruptcy protection. It’s hard to accept that the 11 percent stock move this morning represents a serious shift in that expectation.
If you were incorporated and not legally responsible for
defrauding creditors, wouldn’t you do the same thing?
Under pressure
Restructuring a company’s finances usually means someone takes a loss.
But who should take that loss is often a difficult and nerve-jangling process. Brinkmanship is the usual tactic with hard deadlines often the only way to draw situations to a close. Clever application of legal strategies usually helps also.
All of these factors are at play in the upcoming restructuring of Wind Hellas. The big Greek mobile operator has 3.2 billion euros of debt but is running out of cash to pay its interest bills.
Of the company’s lenders, those at the bottom of the pile — the subordinated bondholders, owed 1.17 billion euros — are under most pressure.
Wind Hellas said on Wednesday that it would not pay an interest payment to these junior lenders as it finalises talks with new investors. With just 26 million euros of liquidity and a 67 million euro interest payment required in the next month someone and something had to give.
The decision not to pay interest to subordinated bondholders indicates where the most pressure is being applied.
The junior lenders are vulnerable because if the company does not pay its interest bills a forced sale becomes more likely, and such a sale would be unlikely to raise enough cash to pay back the subordinated bondholders in full.
Diamonds in the rough
Somewhere out there are ailing companies in need of a turnaround specialist. These experts — also known as company doctors — parachute into troubled businesses to turn their business around.
Funds, such as Oaktree Capital, HIG Capital and Apollo Management, specialise in buying up companies in distress (either through buying equity or debt) and turning them round.
And this should be a great time for these investors — banks are loaded with stakes in troubled companies and unwieldy corporates may want to spin off unwanted businesses.
But banks are not playing ball. They want to wait until the economy recovers and sale values rise. So few companies are up for sale. But the funds want bank sales of stakes to accelerate otherwise it might be too late to turn these companies around.
Private equity certainly has the appetite for new deals. As Reuters reported yesterday, the private equity industry — which may have up to $1 trillion in ‘dry powder’ — is looking to the next restructuring wave for opportunities.
“Sponsors want new proprietary deals to show their limited partners they are not just churning portfolios,” a top investment banker told the Reuters Restructuring Summit.
from Commentaries:
Ukraine’s Naftogaz leaves Eurobond holders with little choice
The repayment date for Ukrainian state energy group Naftogaz's $500 million Eurobond came and went on Wednesday, but all bondholders got was a coupon payment.
Talks to restructure the five-year bond have resulted in Naftogaz presenting its solution to the problem -- swapping the old 8.125 percent bonds for new five-year ones which pay a slightly higher coupon of 9.5 percent and come with a government guarantee.
Given the way Naftogaz has approached its obligations to the Eurobond holders, it's hard to see what comfort "an irrevocable and unconditional sovereign guarantee from the Government of Ukraine" will give them.
The reality though is that bondholders have little choice. Vote against the proposed exchange and they could end up with nothing at all -- and a lengthy and expensive court battle on their hands.
Naftogaz knows this and its statement leaves little room for interpretation:
Naftogaz of Ukraine continues to believe that the best course for bondholders is to review the proposal and carefully consider the terms of the offer.
Bondholders have until Oct 8. to make up their minds on whether or not to accept the Naftogaz exchange. If they reject it and the deal is then accepted by a majority of fellow investors, they get stung with a penalty.
from Summit Notebook:
Zombie companies
In zombie films, the dead walk the earth and slowly annihilate the living. Such a frightening prospect may be in store for Europe, the Reuters Restructuring Summit was told.
Banks are one of the big problems, speakers said, as they are unwilling to take the size of write-downs necessary to cut firms' debts down to a manageable size.
Firms owned by private equity, particularly the number two or three in their sector, are particularly at risk of becoming zombie companies because of their high debt levels and the lack of interest in such firms from equity investors, Simon Parry-Wingfield of Morgan Stanley said.
This may offer opportunities for distressed M&A, he said.
"The corporate world is beginning to see an opportunity ... to pick up middle-market companies or sponsored companies which are stuck in a zombie world because of their balance sheets," he said.
Those firms unable to attract new buyers or investors will be forced back into restructuring talks with lenders, he said, but their long-term future may not be bright.
"People are putting off the problem and the longer it takes to address operational issues, the harder and more expensive it is to fix them," he said.
