(Debtwire) Lowell bondholder seeks to form group via Sarria to relaunch refi process with new proposal
Lowell bondholder seeks to form group via Sarria to relaunch refi process with new proposal
22 September 2020 | 12:02 BST
Independent buy-side desk Sarria is looking to bring together a group of Lowell bondholders and additional funds and structure a refinancing plan that it aims to take to the UK-headquartered debt purchaser, according to two sources familiar with the situation. The initiative was started by Sarria together with a sizeable client, with the aim of relaunching the refinancing process that stalled after talks with a group of wall-crossed funds broke down in July.
Sarria argues that Lowell is halfway there in terms of generating the sustainable cost savings it needs to achieve 1.5x normalized free cashflow interest coverage if its sponsors inject GBP 400m of fresh equity and creditors agree to a 5% average coupon. It expects the company to be able to find another GBP 20m of annual extraordinary expense savings, given extraordinary costs have been high since the acquisition and integration of its Nordics business.
Among the early parties declaring their interest is a client willing to commit over EUR 100m and aiming to bring in other investors. Sarria believes there is an opportunity to re-engage with the company and sponsors and to present the stakeholders with a proposal for either a straight, or partial refinancing solution or an alternative plan.
Shaving the capital structure
Lowell had pre-sounded a handful of accounts over a potential refinancing back in July. Shareholders Permira and Ontario Teachers’ Pension Plan initially tabled an up to GBP 400m equity cheque to facilitate a refinancing of the UK-based debt purchaser's debt stack, but failed to agree a deal after being unable to bridge a mismatch on pricing expectations on the new debt with the wall-crossed accounts. The options under discussion included taking the group's subordinated bonds out at a discount. Lowell had lined up Goldman Sachs and Credit Suisse to lead the refinancing, as reported.
“It needs to be seen if there is scope for an amend and extend or if not, what capital is available for other structures. Investors have different requirements with some concerned about the LTV and some focused on cashflow while everyone wants the docs under control,” one of the sources said. “It is too early to say what can be done but either a straight refinancing or something else looks possible. The subs will need a big gift, but few people are in the mood.”
The company delivered a resilient set of 2Q20 numbers with collections beating expectations, growing LTM cash EBITDA, and margins improving a whopping 470bps. But Lowell likely boosted collections through portfolio sales while its net revaluation of its ERCs (estimated remaining collections) looks aggressive given peers are writing down their ERCs in the face of the deteriorating economic backdrop, as reported.
Lowell’s EUR 365m 7.5% senior secured 2022s are indicated at 95.25-mid yielding 10.4%, while the GBP 230m 11% senior unsecured 2023s indicated at 80.25-mid yielding 19.7% following a roughly 10-point slide last week, according to Markit.
The recent sell-off in the subs was driven by investment banks buying CDS to hedge their RCF and potentially some of their ABS exposure, one buysider noted.
by Adam Samoon