Distressed borrowers seek creative loans to survive virus (1)

When PizzaExpress secured a new loan from a private credit company earlier this month, it paved a way that other cash-strapped businesses are likely to follow in the coronavirus era.

The struggling UK restaurant chain secured £ 70million ($ 86million) from HPS Investment Partners in mid-March. As a super senior loan, it will be paid off first in the event of bankruptcy. Now, other companies are looking for investors willing to provide emergency liquidity to the safest part of the debt pile.

When contracts permit, this type of borrowing could make the difference between business failure or survival. Ordinarily, existing lenders would not agree to a debt being placed in front of them, but in distress or emergency situations, they are more likely to view it favorably, according to Matthew cox, partner at Baker & McKenzie law firm in London.

“We expect to see more and more loans of this type in the coming weeks,” he said, adding that his clients were “actively looking” for super senior opportunities.

Direct lending funds are looking to get into those situations where it used to be banks, he said.

“A trend is developing where alternative credit providers are closing the gap as they did in some ways after the financial crisis,” Cox said.

Likely candidates

On Tuesday, cruise line Carnival Corp., which plans a loss and suspended its dividend, has offered investors a priority right to its assets as it seeks to raise $ 3 billion in cash through senior secured notes.

Borrowers including the French equipment rental company Loxam and Spanish gaming company Cirsa, both with bonds listed at distressed levels, are potential candidates for super senior loans, according to analysts at Spread Research and CreditSights respectively. Online travel agent eDreams Odigeo SA, whose banknotes are priced around 50 cents per euro, should also consider this type of financing to address liquidity problems, say researchers from Covenant Review.

A spokesperson for Loxam said the company has no plans to apply for a super senior loan. Cirsa declined to comment.

“This is clearly an option available to us,” said an eDreams spokesperson, adding that the company had drawn 170 million euros ($ 187 million) from its senior revolving credit facility. “This is one of the strengths of our record.

Private equity owners and troubled debt funds are also natural providers of this type of financing. KKR Credit Advisors provided 50 million euros senior secure loan to vending machine company Selecta Group last week which will be repaid before company notes in case of execution

“We are urgently working with clients to find creative solutions,” said Korey fevzi, partner at Shearman & Sterling law firm in London. Lenders will likely only provide liquidity if they are ranked higher, he said.

However, while some investors are investigating loan opportunities, others are trying to determine if debt is going to be placed on top of them in the structure, thereby reducing the value of their holdings. Subscribers to the research firm Covenant Review are increasingly wondering how borrowers can raise this funding.

The investor lobby group European Leveraged Finance Association is hosting webinars to show its members how to know if high yield bond covenants allow companies to issue this type of debt.

Funding receivable

Another area of ​​secure credit that will see an increase in activity is debt financing, according to John miesner, a director of KPMG’s debt advisory team. This type of financing is attractive to lenders because they receive business invoices as collateral for the loans, thus providing an alternative remedy in the event of insolvency.

“Lenders will seek to structure loans in this way to improve the borrowing capacity of a business,” he said.

(Updates with commentary from Loxam, detail on Carnival)

–With the help of Marianna Aragao and Antonio Vanuzzo.

To contact the reporter on this story:
Katie linsell in London at [email protected]

To contact the editors responsible for this story:
Vivianne Rodrigues to [email protected]

Bruce douglas

© 2020 Bloomberg LP All rights reserved. Used with permission.

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About Paul Cox

Paul Cox

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