NEW RESTRUCTURING OPPORTUNITIES:

Transcription

1 NEW RESTRUCTURING OPPORTUNITIES: WHAT PRODUCT OFFERINGS ARE BANKERS WORKING ON TO HELP BORROWERS RESTRUCTURE THEIR DEBTS 01 MARCH 2017, MOSCOW Anton Kukoba, Raiffeisenbank Artjom Buligin, Herbert Smith Freehills Denis Shanurenkov, Sberbank of Russia

2 CONVENTIONAL RESTRUCTURING Bilateral loans as a most common approach Despite series of improvements in local loan market (Russian LMA, Civil Code reform, etc) many (but not all) of the deals are done in an old school manner: each lender restructures bilaterally (amendment agreements to existing documents or refinancing) No coordination among lenders - restructuring terms shall be similar, but are they in fact? Often, no standstill agreement in place before the deal Often, no intercreditor agreement to set the rules after No complex restructuring as commercial loans are left untouched Same mechanisms of control (no cash sweep, old set of covenants) No advisors Such deals are usually quick and non-public Main lender s negotiation leverage is existing security 2

3 NON-CONVENTIONAL RESTRUCTURING Syndicated Facilities moving into top gear Syndicated lending is used more and more often as a tool for complex restructuring Russian banks tend to choose syndicated loan instead of bilateral solutions in big stories only Local syndicated loans (Russian law) can enjoy state guarantees (GAZ 2010, ChelPipe 2013, UTair 2015) Experience of international banks is bred with local knowledge and expertise by having a mix of banks in the syndicate Security sharing is still a stumbling block Most recent case-studies are UTair (2015) and Trassa (2016) jumbo restructurings There is also a trend for restructurings with equity or quasi-equity participation of banks, which are historically called Russian mezzanines, although in fact they are not always mezzanines. 3

4 NON-CONVENTIONAL RESTRUCTURING SYNDICATED FACILITIES Case-studies: UTair Airlines On 28 December 2015 the largest corporate restructuring in Russia since 2009 was closed restructuring of UTair Airlines debt portfolio, which amounted to ~RUB 160 billion (incl. leasing). The range of restructured debt instruments in the total amount of RUB 80 billion (excl. leasing) included loans in local and foreign currencies, bonds, promissory notes, guarantees, letters of credit and REPO deals. The restructuring plan included cash refinancing / novation of debt on equal financial terms (tenors, rates, repayments schedules etc.) More than 250 loan agreements were refinanced via 2 syndicated facilities with 7 and 12-year tenors (RUB 18.9 and 23.7 billion respectively), 10 bond issues (over 500 bondholders) exchanged into 2 new bond issues, dozens of promissory notes into new notes (all instruments have tenors either 7 or 12 years). UTair Airlines Loans & Bonds 80 billion Roubles Restructuring 2015 UTair Airlines one of the largest aviation groups in Russia and the largest helicopters operator in the world. The group includes airplanes and helicopters operating companies as well as companies involved in maintenance and repairs or aircrafts, crews training, flight services and tickets sales. 4

5 NON-CONVENTIONAL RESTRUCTURING SYNDICATED FACILITIES Case-studies: UTair Airlines (cont.) About 60% of the indebtedness was converted into new 12-year instruments, another 40% got 7-year tenor (syndicated loans, bonds and promissory notes). The base interest rate of the 12-year debt instruments is slightly above 0% and increases depending on financial results of the company. Interest rate for 7-year instruments is close to the market level. In addition to the pledge of assets and suretyships from the subsidiaries of the group, the 7-year credit facility enjoys the state guarantee of the Russian Federation for 50% of the facility amount. The 12- year loan is secured by secondary pledge of assets. Bonds and promissory notes remain unsecured. Facility docs based on Russian LMA Raiffeisenbank acted as a restructuring advisor of the borrower. Sberbank acted as CMLA, facility and security agent. UTair Airlines one of the largest aviation groups in Russia and the largest helicopters operator in the world. The group includes airplanes and helicopters operating companies as well as companies involved in maintenance and repairs or aircrafts, crews training, flight services and tickets sales. 5

6 NON-CONVENTIONAL RESTRUCTURING SYNDICATED FACILITIES Case-studies: TRASSA The deal was structured as a RUB 15.8 bln syndicated loan facility, based on Russian LMA, and a series of bilateral transactions. Syndicated loan facility was signed on October 5, 2016 by ten Russian banks. Other banks outside the syndicate (comprising app. RUB 3.2 bln of debt) were restructured on a bilateral basis, however in line with the terms of the syndicate. Total amount of restructured debt obligations of the Group exceeded RUB 20 bln. The syndicated loan was a two tranche facility with 5-year and 18- month tenors respectively secured by suretyships and pledges of Group s assets. TRASSA Group Loans 20 billion Roubles Restructuring 2016 Raiffeisenbank acted as the Group s restructuring advisor, CMLA, facility and security agent First Russian syndicated loan with no sharing of existing security (joint security comprised assignment of intra-group loans only + DDAs) 6

7 RUSSIAN MEZZANINE STRUCTURES: EQUITY INVESTOR S PERSPECTIVE (SIMPLIFIED STRUCTURE) charter protections outside of Russia Russia Bank Bank s FinCo [20%] guarantee options SHA JV HoldCo 100% Operating Co [80%] UBO Shareholder Combination of loan financing by the bank and equity investment or credit enhancement by way of equity element by bank s FinCo Intent of the structure providing FinCo with negative control by way of veto and anti-dilution rights, regulation of reserved matters, charter protections at JV level and down the line, possibly also enhanced economic rights via a special dividend Shares acquired by FinCo for nominal consideration, any funds injections by the shareholder via share premium Shares usually redeemable upon trigger event; depending on the economics there can be put and call options between FinCo and Shareholder, with additional credit protections at the UBO s level Protections achieved via SHA between FinCo and Shareholder and amendments to charter of JV and down the line All mechanics is included in SHA; to avoid leakage JV s charter only includes requirements on approval of transactions and similar requirements relevant to third parties Mezzanine structures usually at non-russian level 7

8 RUSSIAN MEZZANINE STRUCTURES: EQUITY INVESTOR S PERSPECTIVE (SIMPLIFIED STRUCTURE) charter protections outside of Russia Russia Bank Bank s FinCo [20%] guarantee options SHA JV HoldCo 100% Operating Co [80%] UBO Shareholder Reserved matters balance between control vs uninterrupted business activity. Typically include any change in share capital (including transfers by Shareholder), liquidation, asset disposal subject to materiality, approval of transactions subject to materiality, transactions with related parties, encumbrances/ security, raising finance, material litigation (e.g., settlement or filing major claim), dividends Access to information for FinCo excessive and beyond usual shareholders rights (very important for banks) Liability risks are addressed by the absence of positive control Default under SHA = cross default under loan Upon default or trigger event, shares owned by the Shareholder become non-voting shares, and all shareholder rights can only be exercised by FinCo if it so elects Optionality of transfer of control regulatory considerations Regulatory considerations relevant for scope of control rights, % of equity stake acquired, board membership/ CEO appointment, exercising full control rights after trigger event 8

9 RUSSIAN MEZZANINE STRUCTURES: LENDER S PERSPECTIVE (SIMPLIFIED STRUCTURE) Loan financing provided by the bank at OpCo s level Bank s FinCo UBO Shareholder Security is taken at all levels in accordance with bank s credit policies In certain cases bank may provide financing to FinCo for making the equity investment, in which case there can be second ranking security to support that financing share security Bank [20%] other security loan JV HoldCo 100 % Operating Co [80 %] guarantees Important requirement cross default to SHA Upon default or trigger event, shares owned by the Shareholder become non-voting shares, and all shareholder rights can only be exercised by FinCo if it so elects As a result, if FinCo decides to accept/ exercise shareholder rights, it can quickly change management/ obtain control at all levels and ensure that enforcement of security is not interrupted and/or bank s claims are settled with cash available from asset sale, etc. Once the loan is repaid in full, FinCo exits via redemption or sale to the Shareholder/ a designated party for nominal consideration 9

10 RUSSIAN MEZZANINE STRUCTURES: VARIATIONS Lender provides a loan and makes equity investment (real cash) In a restructuring scenario, equity investment is repaid by way of redemption; new shares issued for nominal subscription price Bank s FinCo Shareholder Bank s FinCo Shareholder [20%] $[x] (1) [80 %] $10 20% new shares $x redemption [80%] JV HoldCo JV HoldCo outside of Russia outside of Russia Russia 100 % Russia $x 100 % (1) loan Operating Co security new tranche $x loan Operating Co security Bank Bank 10

11 RUSSIAN MEZZANINE STRUCTURES: VARIATIONS [charter protections] outside of Russia Russia Bank s FinCo equity upside instrument JV HoldCo 100 % Shareholder 100 % Quasi-equity participation by sharing equity upside with additional SHA-style protections for FinCo in the equity upside instrument and possibly additional protections at JV s charter level Operating Co loan security Bank 11

12 APPROACH TO RESTRUCTURINGS: OBSERVATIONS Minimal recovery now vs. better recovery rate some time in future A higher degree of control SHA s, mezzanines, etc Do Russian and foreign banks have the same approach to restructurings? Standstill arrangements inevitable necessity or waste of time? Cash sweep how to make it work Bilateral approach or a syndicate? Back to normal for how long? Creditors and borrowers perspectives Non-consenting lenders Is trust restored? 12

13 CONTACT DETAILS Anton Kukoba, Executive Director, Syndicated Lending and Structuring, Raiffeisenbank Artjom Buligin, Partner, Banking and Finance, Herbert Smith Freehills LLP Denis Shanurenkov, Managing Director, Head of Syndications and Loan Trading, Sberbank CIB 13