Essity bondholders clear litigation hurdle
Bondholders in Swedish company Essity have succeeded in persuading the English courts to hear their action against the healthcare products maker, first launched last December after Essity spun off its Asian arm Vinda for SKr19bn (US$1.9bn).
Bondholders, including Caxton, Sona and Sparta, said this meant the group should repay their notes in full because of the change in Essity’s business. The parent company had not sought consent from bondholders ahead of its divestment of Vinda.
“There is a real prospect that the bondholders can obtain declarations that Essity’s disposal of its interest in Vinda was an event of default under the notes, because it was a disposal of a substantial part of the business,” said a banker close to the situation.
The banker said it was the first time an English court had considered whether to allow such action to take place. The preliminary hearing had revolved around whether the noteholders themselves could pursue the action of their custodians on their behalf.
Essity said only the custodians, Clearstream Luxembourg, could bring the action, but that has now been rejected by the judge, Mr Justice Fancourt. The bonds in question are €600m 0.25% 2029s, €300m 0.5% 2030s and €700m 0.25% 2031s. The bondholders own €110m principal.
“The judgment recognises that clearing systems serve a purely ministerial function and they have no interest other than to comply with instructions that are given to them. No useful purpose would be served by joining the clearing systems to the claim,” said the banker.
Since Essity’s bondholders launched their action in December, several corporate issuers have acted more cautiously seeking consent ahead of major corporate actions, with varying degrees of success.
In March, Swedish industrial bearings maker SKF failed to gain consent from bondholders of its two longest maturing notes to acknowledge that the proposed spinoff of its automotive business on Nasdaq Stockholm would not trigger a cessation of business clause.
SKF asked holders of its four bonds to accept this, via a consent solicitation organised by Citigroup and SEB, but only the holders of the two bonds with the shorter maturities agreed this was the case.
Should SKF go ahead with the spinoff of its automotive business, it risks the holders of its €300m 0.875% 2029s and €300m 0.25% 2031s accelerating and demanding full repayment of their bonds.
In April, OCI Global, the chemicals producer controlled by Nassef Sawiris and his family, agreed to pay back holders of its US$600m 6.70% 2033 notes 110.75% of their principal, plus accrued and unpaid interest, ahead of the sale of its methanol business to Methanex.
And, earlier this month, Warner Brothers Discovery bondholders effectively gave their consent to the mooted split of the company. This will allow a potential US$14.6bn tender at a discount to proceed rather than see bond investors hold out for a full repayment. The offer closes on July 9.
These situations are of concern to European corporate issuers, as many printed low-coupon bonds between 2019 and 2021, which are now trading under par as rates have risen.
That means they could be accelerated if a major corporate action such as a divestment is proposed, if it is deemed a cessation of business.