On 26 April 2023 French air cargo-handling group, Worldwide Flight Services (“WFS”), launched a cash tender offer and consent solicitation via its subsidiary, Promontoria Holding 264 B.V. (the “Issuer”), to buy back all of its outstanding €340m 6.375% Senior Secured Notes due 2027 (the “Euro SSNs”) and $400m 7.875% Senior Secured Notes 2027 (the “USD SSNs”, and together with the Euro SSNs, the “Notes”) – the Notes were trading at 97/98 prior to the launch of the tender offer.
WFS had recently been acquired by Singapore listed SATS Group, which had expressed its intention at the time to refinance the Notes with materially cheaper debt available to the wider group.
The initial tender offer consideration was slightly above 101% (including 3% of early bird tender premium) – however, the Notes were still within their non-call period and the make-whole premium applicable at the time exceeded 106% for each series of Notes.
An amendment to the make-whole premium or the early redemption call schedule under the Notes would have required the consent of at least 90% of the aggregate principal amount of the Notes, as make-whole premiums and call prices are typically considered part of the package of ‘sacred rights’ under high-yield bonds.
Instead, the Issuer proposed a coercive consent solicitation to strip covenants and collateral from the Notes in the event that consents were received from the requisite thresholds of bondholders (being 50% for covenant amendments and 75% for release of collateral).
This type of coercive exit consent mechanism is a common feature in liability management exercises undertaken by stressed / distressed issuers – however, as far as we are aware it has not been deployed by non-distressed issuers in the European HY market.
Following launch of the tender offer, market reaction to the offer was widely negative and generally provoked one of two reactions:
- First, it is not appropriate for a (non-distressed) issuer to use coercive LME-style tactics to override contractually agreed redemption / call schedules, which are a fundamental aspect of fixed income securities, and holders should respond forcefully to prevent any precedent emerging from this transaction; or
- Second, HY bonds clearly allow for the use of coercive LME-style tactics, and sophisticated market participants are aware of this when buying these securities – however the Issuer should have undertaken a price-seeking exercise with large holders before launching any tender offer.
As it happened, within several days of the launch of the tender offer, Weil helped to coordinate an ad-hoc group of bondholders holding more than 50% of the aggregate amount of the Notes to oppose the tender offer (the “AHG”). A key element to the AHG’s success in this case was being able to very quickly enter into a short cooperation agreement amongst themselves to avoid the ‘prisoners dilemma’ of the coercive tender offer.
A price-seeking exercise was then undertaken by the Issuer and holders of more than a majority of the Notes reached commercial agreement on acceptable redemption prices for the Notes. This enabled the tender offer to proceed at the revised redemption prices with the coercive elements of the initial tender offer now supported by (and, crucially, now capable of being implemented by) a majority of Noteholders. In the end, the revised tender offer was accepted by approximately 95% of Noteholders.
The Weil team was led by Restructuring partners Neil Devaney and Matt Benson. They were assisted by restructuring associate Malina Tatarova and finance partner Gilles Teerlinck and finance associate Fabio Pazzini.
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