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Thursday, 23 November 2017

EMEA Restructuring

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Irish lines untangled: The restructuring of Eircom, Europe’s largest corporate workout of 2012, put a disparate group of senior lenders in charge of Ireland’s former telecoms monopoly through an unproven domestic insolvency regime. As one of the most complicated deals to negotiate, Eircom is IFR’s EMEA Restructuring of the Year.

To see the full digital edition of the IFR Review of the Year, please click here.

Judging by the dire headlines about the eurozone crisis, 2012 should have been a bumper year for restructuring across Europe. But the cataclysmic fears instead spooked banks into ignoring problematic loans, while a roaring corporate bond market helped weaker credits refinance.

The largest corporate restructuring deal in 2012 saw Ireland’s leading telecoms company Eircom and its senior creditors use the largely untested Irish domestic insolvency regime, examinership, to carry out its €4.2bn debt restructuring in June.

That came nearly two years after Eircom first warned it might breach covenants and at a time when Ireland had itself sought financial assistance from its European partners and the IMF, a backdrop that overshadowed negotiations with potential providers of capital to Eircom.

In 2009 Singapore Telecommunications Telemedia paid €140m for a majority stake in the business, which had changed hands in a series of leveraged deals over the previous decade since being privatised. Employees, through their share scheme, owned the remaining equity.

At that stage JP Morgan suggested the company carry out liability management exercises to reduce junior debt. However, Gleacher Shacklock, which also advised Eircom, said those debt classes would be wiped out in any wider restructuring and should not be offered an escape route.

Initially there was hope that STT, with Lazard as adviser, might put in fresh capital as part of a wider restructuring to retain control of the business. Eircom is one of Ireland’s largest employers, making the situation politically sensitive.

That hope was dashed in December 2011 as the co-ordinating committee of first-lien lenders, advised by Houlihan Lokey, decided STT’s proposal to put in €300m came with too many conditions. The Singaporeans said they wanted the equity to become super senior debt should the eurozone split up.

“It was like a reverse convertible,” said Dorian Lowell, senior managing director at Gleacher Shacklock.

That sparked a sales process run by Morgan Stanley to find alternatives and establish that the value broke in the first lien’s €2.7bn block of debt.

As many as 300 parties, including CLO fund managers and distressed debt investors, had stakes in that pile. Many also had cross-holdings with the €350m of second-lien debt (holders of which were advised by Moelis). Floating-rate noteholders were also claiming some seniority even if PIK holders were out of the money.

The second lien preferred using an English scheme of arrangement, which might establish their rights. This would also have avoided having to declare the operating business insolvent in Dublin to trigger the examinership. It was decided, though, under some political pressure, that the unproven domestic process should be used to cram down junior creditors.

A decision was made ahead of March 31 when coupons on the notes were due. Even then the saga took a final twist when Hutchison Whampoa emerged as a last-minute bidder. But this distraction did not put off the judge, Justice Kelly, who approved the deal on June 11, just 74 days after filing.

Elsewhere, Greece’s restructuring in March of its €206bn of private sector debt stood out. It was the largest ever restructuring by a sovereign and the first by a Western European nation for 60 years. The 96% take-up was seemingly impressive, considering bondholders, long promised that restructuring was off the table, eventually took a 75% net present value haircut.

But, in reality, investors had little choice. The deal was effectively imposed by Greece’s official sector creditors – the IMF and eurozone nations – and carried out by invoking Greek law to lodge an aggregated collective action clause across all Greece’s €177bn of bonds written under domestic law. Thus only a third of investors were required to back the deal, easing its passage considerably.

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